On 27 March 2019, Beach J handed down his decision of SNF (Australia) Pty Limited v BASF Australia Ltd (SNF). In that case, his Honour commented on the appeals process from Australian Patent Office (APO) decisions relating to patent oppositions.
By way of background, after a patent has been accepted, it is liable to opposition by an interested person for three months, during which time that person can file a notice of opposition to grant. The rationale for the patent opposition system in Australia is, amongst other things, to provide a ‘swift, straightforward and inexpensive process to settle disputes’.
Either party may appeal an opposition decision of the APO to the Federal Court of Australia (FCA). Appeals before the FCA from APO opposition decisions (Appeals) are heard de novo as original proceedings. Parties can introduce new evidence, materials and argument on appeal which were not relied upon, nor argued, before the APO. This understandably increases the legal costs, time and complexity of the APO opposition process.
There is no doubt that a small but significant number of Appeals are undermining the rationale and purpose of the opposition proceedings system. Recent commentary by Beach J, as well as data obtained from IP Australia, indicates that some Appeals are complex, require extensive court time to resolve, can adversely impact upon judges’ already busy dockets, interfere with court timetables, extend the time for determination of the dispute and in so doing substantially increase legal costs. However, the available data indicates that approximately half of the Appeals only require one or two days of court time and that as a consequence, to that extent, the system operates as intended.
Proceeding on the assumption that the number of Appeals giving rise to the problems associated with large complex Appeals is statistically small, we consider it likely the problem could be ameliorated to a significant extent by the parties’ legal advisors cooperating to develop a realistic court plan before the first case management conference (CMC) and the docket judge ensuring strict adherence to the agreed plan (with very limited exceptions) utilising the case management mechanisms already available. Approaching the problem in this way would render unnecessary the other possible measures of addressing the problem identified by Beach J in SNF.
- Comments of Justice Beach
Beach J opined but made no criticism of the Appeals system or the parties in his lengthy reasons for judgment in SNF. His Honour observed at :
Let me conclude with one final observation. The hearing of these appeals has not proceeded smoothly. The three weeks initially set aside for the hearing turned out to be inadequate. The hearing had to be adjourned over for a further week of evidence months later, and then further adjourned for several days of closing addresses. The substantial adjournments were necessary to accommodate the other significant commitments of counsel, witnesses and the Court. I make no criticism. It is what it is. But the sheer length, complexity and delays involved in these appeals does give cause to reflect on the following questions. Should appeals of this type be permitted to proceed as rehearings de novo allowing the parties to run any ground they like, whether raised before the delegate or not, and upon any evidence they choose, whether adduced or available to be adduced before the delegate or not? Or should they be permitted to proceed only upon the grounds and evidence led before the delegate with truly fresh evidence only being permitted in exceptional circumstances? Or should there be no appeal at all from the decision of the delegate, but only judicial review permitted demonstrating jurisdictional error? Or should there be an appeal for error of law only, and perhaps only with leave? Now these are policy questions, and legislative amendment would be necessary. But on any view it is not sufficient to tinker with the problem by fiddling with the standard of proof, which provided no real solution to deal with the length and complexity of what unfolded before me, notwithstanding the case management techniques available. But perhaps a more robust approach can be taken. One solution may be to put the parties on a chess clock to limit a hearing of the present type to 5 days rather than 5 weeks. And instead of 20 volumes of double-sided material as the standard length of a court book, this could be severely confined. Further, perhaps it is time for appellate courts to show some guidance in permitting short form reasons. Anyway, these reasons should not be further drawn out.
- Rationale for the Patent Opposition System
The explanatory memorandum of the Intellectual Property Laws Amendment (Raising the Bar) Bill 2011 (RTB Explanatory Memorandum) discussed the purpose of the patent opposition system. The Memorandum noted that the purpose of oppositions is to prevent the grant of invalid intellectual property rights, to take into account the interests of business competitors, and to provide a relatively efficient process to settle disputes as ‘an alternative to more costly court proceedings’.
The Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (RTB Act) sought to reduce complexity and delay in patent opposition proceedings. It did so by removing the need to serve the notice of opposition on the applicant, and reduced the time period to file the originating opposition, evidence, and the notice of intention to defend. However, the changes did not address costs, complexities and time limits should an opposition decision be appealed to the FCA. The RTB Act did however give power to the Court to decide on proposed amendments by the applicant to their patent specification whilst the Appeal remains pending. The purpose of this change was to allow for amendments subsequent to the APO’s decision to be implemented, which may resolve some arguments relevant to the Appeals.
Courts have also commented on the purpose of opposition proceedings. In F Hoffman-La Roche AG v New England Biolabs Inc, which was part of a 20 day series of litigation, Emmett J opined at :
The fact that the legislation contemplates two stages at which the question of validity of a patent might be challenged indicates that there must be a distinction between the two proceedings. Such an approach is consistent with the proposition that pre-grant opposition is intended to provide a relatively inexpensive mechanism for resolving third party disputes as to validity. The purpose of pre-grant opposition proceedings is to provide a swift and economical means of settling disputes that would otherwise need to be dealt with by the courts in more expensive and time consuming post-grant litigation; that is, to decrease the occasion for costly revocation proceedings by ensuring that bad patents do not proceed to grant…
This emphasis on the efficiency of the opposition proceeding has been reiterated by the Court in a number of other cases.
On the other hand, problems arising from Appeals from usually cost and time efficient opposition proceedings have also been the subject of previous comment. The RTB Explanatory Memorandum noted:
…there are problems with the current opposition schemes, including appeals from opposition decisions, which result in undue delays and complexity in resolving opposed applications. This can cause difficulties for applicants, who are keen to start using their IP rights. The inability to do so for an unreasonable time can be commercially oppressive. It can also cause difficulties for opponents, who want a quick decision that the patent granted on the application would be invalid and therefore not a commercial threat to them.
- The system has its champions
Although Beach J has shined the spotlight on unacceptable problems arising in the category of “complex Appeals”, the potential for the de novo appeal system to achieve its intended purpose, and in so doing assist the efficient working of the patent system to the benefit of the applicant, opponent and general public has been the subject of favourable comment in several cases.
…the public interest in ensuring that there should be no grant of a patent where the patent would clearly be invalid, requires that, on the hearing de novo of the case as to whether the opposition succeeds, the Court may consider any ground that could, under s59, be raised in opposition to the grant of the patent…Where the grounds of invalidity intended to be relied upon on the hearing of an appeal under s60(4) have not been fully ventilated before the Commissioner, the Court would be at a disadvantage, to the extent that it does not have the benefit of findings by the Commissioner or her delegate. Such findings will normally be given significant weight by the Court because of the considerable experience and expertise that would have been brought to bear in making the decision. Of course, that weight will be limited where the Court, in the exercise of its discretion, permits evidence to be adduced beyond the evidence that was before the Commissioner’s delegate…there would be no prejudice to an applicant for a patent simply because the case of the opponent might be reformulated in the light of the decision of the Commissioner’s delegate. The fact that the case is reformulated may, in fact, tell against the opponent because of the difficulty that would arise in concluding that, in such circumstances, it was clear that any prospective patent would be valid. Further, even if the opposition ultimately failed, any person could bring a revocation proceeding, with the advantage of being able to reformulate a case in such manner as was considered appropriate, having regard to the case formulated by that person, or another opponent, in opposition proceedings.
It is interesting to note that the above Du Pont series of litigation in relation to the opposition proceedings consumed 21 days of court time.
In Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd, McKerracher J expressed similar sentiments to those expressed by Emmett J in Du Pont when discussing the public interest in a hearing de novo, stating that all material properly available should be available to the Court during the Appeals, and not restricted to what was before the APO.
- Have the Objectives Been Achieved?
The overarching objective of the opposition system is to be effective and efficient in resolving patent disputes pre-grant. However, the Appeal system is a much more complex and lengthy beast.
Since January 2004, there have been 299 opposition applications in which the opposition was dismissed, the application was refused, or the APO otherwise finalised the matter. Only a few of these decisions were in fact appealed to the FCA.
After analysing all Appeals recorded on Austlii and LexisNexis since 1998, some interesting results were found. The average duration of the Appeals (including for example days dedicated to determining costs orders) was 5.9 days. However this average figure is likely to have been statistically skewed by several very long proceedings.
Looking at Figure 1, 50% of patent opposition appeals were heard by the FCA or Full Federal Court of Australia (FFCA) in two days or less. Whilst this seems reasonable, it is undoubted that even the costs associated with these ‘short’ Appeals (including court, solicitor, barrister, patent attorney and expert witness fees) would still be substantial. Additionally, 36% of these Appeals required over one week of court time. Interestingly, only four Appeals since 1998 have required over four weeks of court time to complete.
Adding to the costs of the Appeals is the large proportion of matters that the parties concluded were of such complexity as to necessitate the engagement of Senior Counsel. Referring to Figure 2, approximately 53% of the days in court involved the attendance of two Senior Counsel. 9% of those days involved three.
The current Appeals system is certainly not a cheap and efficient mechanism for dealing with disputes. However, the data above indicates that there are in fact very few extensive Appeals which arise from patent opposition proceedings.
- What are the alternatives?
Beach J identified a number of measures that could be considered to address the undoubted problems associated with lengthy Appeals and that might more effectively achieve the intended objective of the patent opposition system.
(a) Administrative Review
One possible solution identified by Beach J to address the problems associated with complex expensive Appeals would be restricting opposition Appeals to error of law grounds only, or allowing judicial review of decisions demonstrating jurisdictional error.
Subject to the restrictions identified below, APO decisions made under the Patents Act 1990 (Cth) (the Act) may generally be appealed to the FCA on jurisdictional error grounds under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act) or the Judiciary Act 1903 (Cth) (JA), or be subject to merits review by the Administrative Appeals Tribunal (AAT).
The AAT is restricted to reviewing decisions only when legislative instruments grant it the requisite jurisdiction. The AAT can undertake a merits review of certain APO decisions, which allows a reconsideration of the facts and law of the original decision afresh. We note in this regard that there are provisions that allow the AAT to review APO decisions to dismiss an opposition at the applicant’s request, or to determine oppositions subsequent to complete re-examination of a specification. However, the AAT cannot undertake reviews of the APO’s acceptance or refusal to grant a patent under ss 49 or 50 of the Act, or APO opposition decisions refusing or accepting an application under ss 59 and 60 of the Act. Consequently, specific legislation would be required to grant the AAT jurisdiction over decisions made by the APO under sections 49, 50, 59 and 60 of the Act. Awarding jurisdiction to the AAT to hear these Appeals would ensure as “little formality and technicality as possible”, and would as a consequence be likely to reduce the need for several legal professionals (such as a patent attorneys, solicitors and barristers) thereby reducing expense.
The ADJR Act currently provides that certain decisions ‘of an administrative character’ can be appealed to the FCA on several grounds, including whether the decision was an error of law, contrary to law, or a breach of the rules of natural justice. This is broader than the court’s powers to review only on the basis of an error of law under s 39B(1A)(c) of the JA. This section allows the Federal Court to hear any matter ‘arising under any laws made by the Parliament’, such as ss 49 or 50 of the Patents Act. To successfully bring a matter under the JA, a party must demonstrate that the decision of the APO to grant or refuse to grant a patent was a jurisdictional error. Therefore, Appeals to the FCA which are restricted by the jurisdictional pre-requisites of the ADJR or JA provide a mechanism for reducing the scope of argument which can be put before the Court. In this regard, Beach J was possibly suggesting a restriction on the avenue of hearing Appeals de novo, to render matters suitable for hearing under the ADJR or JA.
(b) Chess clock trials
Beach J also made mention of the possibility of chess clock trials and limiting the time for argument, to better address the issues and reduce the length of Appeals. Chess clock trials are provided for in the National Court Framework and Case Management Practice Note for the FCA (CPN-1, 25 October 2016). Parties agreeing on the time for certain steps during trial or appeal utilising a chess-clock approach is one of the Court’s Case Management Imperatives. This mechanism has been used in matters to complete trials within a short allocation of time.The Federal Court Rules 2011 (Cth) (Rules) also permit the Court of its own motion, to limit the time for a party to make submissions, present their case, and examine or cross-examine witnesses. The Rules also allow the judge to limit the number of documents tendered in evidence, and limit the length of written submissions.
Accordingly, there are numerous mechanisms available to judges hearing Appeals to enforce time and evidence restraints on parties.
After hearing a matter which, contrary to the parties’ original time estimates, took five weeks of court time and caused significant disruption to an already crowded docket, it was understandable that Beach J made very restrained comment on the efficiency of the patent opposition Appeal process. However, the data demonstrates that very few patent oppositions are in fact appealed, and half of them are resolved in one or two days. Nevertheless, a large proportion of these shorter Appeals utilise expensive legal teams, and the costs associated with them remain substantially higher than those incurred before the APO in the actual opposition.
In terms of processes to improve the Appeals system, there are currently several case management options open to judges to restrict the length of the matter and render it more cost and time effective. As discussed above, the court has the capacity to reduce court time, restrict the evidence tendered, examination and cross-examination and require short submissions. These mechanisms are already in place and would not require legislative intervention.
On the other hand, in our experience courts are understandably reluctant to interfere with the manner in which parties conduct their cases except in cases of transparently egregious conduct. Proceeding on the assumption that the preceeding observation is correct, it is our view that in accordance with the Overarching Purpose of Civil Practice and Procedure stipulated in ss37M and 37N of the Federal Court of Australia Act 1976 (Cth), parties should ensure that:
– they identify the key issues that they believe will determine the outcome of the Appeal,
– identify the materials and the relevant expert and lay witnesses necessary to effectively present their case,
– identify any likely interlocutory applications,
– realistically estimate the time required for all steps in the proceeding,
and then confer with their opponents and, obviously without forensically disadvantaging their respective clients;
– agree to a limited number of witnesses (expert and lay) and materials,
– agree to endeavour to avoid, or reduce the number of, interlocutory applications (including pleading amendments, discovery applications) by a process of constructive negotiation,
– agree to confine cross-examination and the extent of written and oral submissions to the key points in dispute,
– agree to the steps necessary to comprehensively conduct the appeal,
– agree to realistic time estimates for completion of all steps including the actual hearing,
– agree to accept a hearing date at the first CMC if offered as a discipline to ensure adherence to the timetable from start to finish,
in order to present a plan to the docket judge for approval at the first CMC on the clear understanding that the judge will utilise the various case management mechanisms available to ensure the plan is adhered to unless compelling proof of exceptional unavoidable circumstances is presented.