Patent infringement – patent validity – additional damages
Justice Besanko has found Vehicle Monitoring Systems’ (VMS) two standard patents over parking infringement technology valid and infringed by both SARB Management Group and the City of Melbourne (CoM). This judgment traverses a litany of infringement and validity issues, some more interesting (and perhaps controversial) than others. The infringement case consisted of four discrete issues whereas the validity case involved arguments on best method, sufficiency, entitlement, fair basis (internal), obviousness, false suggestion, lack of clarity and failure to define the invention.
In the opinion of these authors, the following aspects of this decision are of particular interest:
- Justice Besanko’s opinion that the provision of customer support by SARB within the limitation period (imposed by the statute of limitations) in relation to products supplied outside that limitation period does not constitute infringement.
- On the lack of entitlement case, the individual who SARB asserted should have been listed as a co-inventor was deposed by SARB’s counsel before his Honour some months prior to trial after that individual refused to provide affidavit evidence due to his confidentiality obligations to VMS.
- Justice Besanko’s decision to award additional damages against SARB (but not CoM) in relation to two of its three products after SARB continued to sell its products despite Justice Yates’ finding in 2013 that those products infringed VMS’ related innovation patent.
The parties have already been back before the Court in a substantive dispute on the form of orders to give effect to the judgment. The orders, as made, providing for injunctions, payment of costs and damages or account of profits have been stayed pending the determination of SARB’s appeal, which was filed on 23 June 2023.
Background
The parties in this dispute first met in the Federal Court over this technology around a decade ago. In that initial battle, VMS instituted patent infringement proceedings against SARB in relation to VMS’ innovation patent. SARB cross-claimed for revocation. Justice Yates found the innovation patent valid and infringed in Vehicle Monitoring Systems Pty Limited v Sarb Management Group Pty Ltd (trading as Database Consultants Australia) (No 2) [2013] FCA 395 (VMS 2013). SARB appealed to the Full Court but the parties resolved the proceeding, entering into a settlement deed before judgment was delivered. For the reasons explained below, both VMS 2013 and the settlement deed have a material impact on Justice Besanko’s reasoning in this decision.
In the current dispute, VMS initiated infringement proceedings in relation to two of its standard patents (both related to the innovation patent) and sought, amongst other things, additional damages. On this occasion, in addition to suing SARB, VMS brought proceedings against the City of Melbourne (CoM) for its use of SARB’s technology. It appears that CoM was not a respondent in VMS 2013 because, at that time, VMS was still hopeful that it could win work from CoM (instituting federal litigation against a potential customer is typically not the best way to win work). SARB cross-claimed, seeking revocation of the patents on a host of section 40 grounds (being the version of section 40 of the Patents Act as in force prior to the Raising the Bar Amendment Act), lack of entitlement, lack of inventive step and false suggestion. CoM adopted SARB’s submissions on all grounds except additional damages, where it advanced its own submissions.
Infringement
The following technical matters are relevant to the four infringement issues in dispute:
- SARB’s product is known as PinForce and has three versions.
- The invention involves a detection apparatus (DA) which sits underground where the vehicle is parked, detects the presence of a vehicle, stores data and wirelessly transmits that data to a data collection apparatus (DCA).
- The DCA indicates to an operator if the vehicle has overstayed.
1. What does “wake-up signal” mean, and do SARB’s products have it?
This argument applied only to a sub-set of SARB’s products. The parties’ experts agreed that the wake-up signal acts as a keep awake signal to alert the DA to the presence of the DCA within radio communications range so that the DA and DCA can engage in a communications session. However, the experts disagreed as to the signal which acts as the wake-up signal, which device was sending that signal and therefore, whether SARB’s products possessed the relevant claim integer.
This issue was addressed in VMS 2013 where Justice Yates found that SARB’s products possessed the relevant wake-up signal. VMS originally asserted issue estoppel in relation to those findings, but later discarded that argument in favour of submitting that the findings in VMS 2013 were highly persuasive. SARB argued that the VMS 2013 findings should not be followed because the Court in that case did not have the benefit of fresh evidence which demonstrated that the relevant product did not use a wake-up signal as claimed.
Justice Besanko rejected SARB’s arguments and said at [76] that “[i]n my opinion, the essence of the Court’s reasoning in VMS 2013 applies having regard to the evidence advanced in this case and, with respect, that reasoning is correct.” Ultimately, his Honour did not consider that the fresh evidence altered the position. On that basis, his Honour found that the relevant products satisfied the wake-up signal integer. Justice Besanko’s finding on this issue serves as an example of how difficult it can be to successfully run new arguments where adverse prior findings have been made on related patents.
2. Do the claims include a method or system where the determination of vehicle overstay is made by the DCA instead of the DA?
VMS’ argument was that, on the correct construction of the claims, either the DA or the DCA can make the determination that the vehicle has overstayed. SARB disagreed, and said that, properly construed, the claims only applied where the DA makes the determination. If SARB’s construction was correct, their products in which the determination was made solely in the DCA (Pinforce version 3) would not infringe.
After contemplating the expert evidence on construction and considering the claims on their face, Justice Besanko formed the view that those claims were ambiguous and, therefore, it was necessary to have recourse to the body of the specification to resolve the ambiguity. The following integer of claim 21 was the focus of this finding:
said processing unit [of the DCA] programmed to process said data received via said radio receiver and to indicate instances of over stay to an operator;
said data relates to identified instances of vehicle overstay in a respective parking space.
In essence, his Honour said that it was ambiguous as to whether the words “said data relates to identified instances of vehicle overstay” is limited to overstay determination data (which is not transmitted in Pinforce version 3 as determination does not occur in the DA) or whether this included data which may lead to determination of instances of vehicle overstay (which is transmitted in Pinforce version 3 as this data is fed to the DCA so that a determination can be made).
After turning to the specification, Justice Besanko concluded that the relevant claims included a system where the determination was made by the DCA (ie the determination could be made in either the DA or DCA). His Honour also considered the omnibus claims (which were relied on by VMS in the alternative) and found that his construction of those claims had to follow his construction of the earlier claims.
3. Is SARB liable for authorising infringing acts (and as a joint tortfeasor) for products sold: (i) outside the statute of limitations period (Limitation issue); and/or (ii) in the period permitted by the settlement deed (Authorisation issue)?
Limitation issue
The parties agreed that, by virtue of section 120(4)(b) of the Act, VMS was precluded from recovering damages or loss of profits in respect of infringing acts by SARB prior to 15 February 2013 (being 6 years prior to institution of the infringement proceeding). For reasons not explained in the judgment, the parties had also agreed that VMS would not seek to recover damages or an account of profits in respect of acts performed prior to 9 May 2013 (being the expiry of the innovation patent). Accordingly, the agreed limitation period was after 9 May 2013. The interesting question for the Court was whether SARB was liable for authorising patent infringement and/or as a joint tortfeasor in relation to uses by SARB’s clients which occurred inside the agreed limitation period in respect of products supplied outside the agreed limitation period.
VMS argued that it was entitled to recovery for such supplies because SARB provided acts of service, maintenance, firmware upgrades and other assistance to its customers in relation to those products (customer support) within the period where liability did accrue, and those acts were each separate acts of authorisation of infringement and a separate statutory tort.
SARB sought to argue that VMS failed at the first hurdle because it had not led any evidence as to the nature and timing of the customer support. The Court rejected this argument and found that the point had effectively been decided against SARB in a previous decision on a discovery fight between the parties in the same matter. In that discovery fight before Justice Yates in 2020, VMS applied for the discovery of SARB’s contracts in relation to SARB’s supply of its products before 9 May 2013. In resisting that application, SARB admitted that it provided customer support during the course of its contracts. This admission resulted in Justice Yates deciding that the discovery of those documents was not required. Justice Besanko relied on that earlier admission as sufficient evidence of SARB providing customer support inside the limitation period.
SARB also argued that it was not liable for its conduct inside the limitation period because the infringing act of authorisation was given to each client only once, and that was when it supplied the relevant products.
The Court found in SARB’s favour on this latter issue. Justice Besanko did not consider that the customer support which occurred after 9 May 2013 in relation to supplies provided prior to 9 May 2013 constituted authorisation of any customer’s infringing uses. Further, his Honour did not consider there to be any scope to argue that there was authorisation by reason of mere failure to act within the limitation period. When SARB sold or otherwise disposed of the products, it was at that time that it authorised is customers to use the systems and SARB had no power to prevent those customers from using the systems subsequently. His Honour also held that the customer support did not make SARB a joint tortfeasor because those acts were performed pursuant to lawfully binding contracts entered into before the limitation period and there was no power to prevent the use and no procuring, inducing or acting in concert in the relevant sense. Justice Besanko’s findings on this issue provide some useful guidance on the complex question of alleged “ongoing infringement”, which often arises in the context of products which require end user support.
Authorisation issue
SARB also argued that VMS was not entitled to any relief prior to 9 May 2013 because of the implied authorisation given by VMS under the settlement deed. The substance of SARB’s argument was that, on payment of the settlement amount, the settlement deed released and discharged it from all claims of infringement or exploitations of the innovation patent prior to 9 May 2013. SARB submitted that VMS was aware when it signed the settlement deed that SARB was likely to have supply obligations to existing clients and that by entering into the deed without requiring SARB to remove its existing products, VMS impliedly authorised the ongoing use of the products that were supplied prior to 9 May 2013. That is, to the extent it can be said that the customer support constituted authorisation of infringement, that conduct was itself authorised by VMS.
His Honour observed that for this issue to be relevant he would have to accept that, contrary to his finding on the Limitation issue, customer support inside the limitation period constituted authorisation of infringement or joint tortfeasorship. His Honour considered that the settlement deed did not release SARB in relation to such claims. The language of the deed provided that VMS released and discharged SARB from all claims for “any infringements or exploitations of the VMS Innovation Patent that happened prior to is expiry”. If customer support constituted an infringement (contrary to his Honour’s view) then his Honour considered that this clause did not protect SARB.
4. Are SARB and CoM liable for additional damages under s 122(1A) of the Act?
Justice Besanko considered the material relevant to the question of additional damages in great detail. Over 26 pages (of a 188 page judgment) his Honour set out a chronology of the relevant events, commencing in 2006 when SARB was first made aware that VMS had patent rights in parking overstay technology. His Honour ultimately concluded that SARB was liable for additional damages in relation to some (but not all) of its products, and that CoM were not liable for any additional damages. This portion of the judgment provides some valuable guidance of the circumstances in which a court may consider an award of additional damages to be warranted.
SARB
Justice Besanko found that SARB was not liable for additional damages in relation to version 3 of its PinForce product. His Honour considered SARB’s argument that the claims did not include a product where the determination of the vehicle overstay was made in the DCA only (ie the version 3 product) was reasonably arguable. However, with respect to version 1 and 2, Justice Besanko considered SARB’s conduct after the delivery of judgment in VMS 2013 to justify an award of additional damages. Justice Besanko said at [210] that:
Even though that decision dealt with a different patent, there were sufficient similarities for it to be inferred that SARB must have known that to continue to deal in PinForce Versions 1 and 2 involved a very substantial risk of infringement.
CoM
His Honour looked closely at the correspondence between VMS and CoM and ultimately concluded that CoM’s conduct at all relevant time points was reasonable. His Honour found the following factors to be of particular significance in reaching this conclusion:
- CoM was not named as a respondent in VMS 2013.
- The fact that CoM was issued a subpoena to produce documents in relation to VMS 2013 was not sufficient, without more, to put CoM on notice of its potentially infringing conduct. CoM often received requests for documents.
- After VMS 2013, CoM was told by SARB that the parties were engaged in mediation and that the matters appeared close to resolution.
- The first time VMS made infringement allegations against CoA was in December 2015 and that assertion was made in the context of VMS requesting that CoM revisit its decision not to award a tender to VMS.
- After VMS’ infringement allegations in 2015, there was no further action or communication by VMS until nearly three years later when a letter of demand was sent to CoM.
His Honour also noted that, even if he had reached a contrary conclusion regarding CoM, he would not award additional damages in relation to the use of PinForce version 3 for the same reasons that he was not prepared to award additional damages against SARB.
Validity
Lack of best method and insufficiency
SARB’s case on lack of best method was that the patents in suit failed to describe:
- the best method known to VMS of communicating data from the DA using a wake-up scheme because the specifications did not describe what it knew at the relevant time to be the best transceiver (the ASTRX2/AIMS 52000); and
- the best method known to VMS of designing and adjusting an antenna to communicate data from the DA because the specifications did not describe an antenna.
Justice Besanko found that the patents did disclose the best method.
As to ASTRX2, his Honour found that, while the ASTRX2 was the best transceiver known and was not disclosed, the patents did disclose the wake-up scheme and described the parameters within which the scheme may operate. In circumstances where there was nothing indicating that the inventor knew of a better method of performing the wake-up scheme or that the ASTRX2 which had been used by VMS had been programmed other than in accordance with those parameters, his Honour considered that the best method requirement had been established.
As to the antenna, his Honour considered that, based on the evidence, the work required for the antenna was routine for the person skilled in the art and at [466] concluded that: “[a]pproaching the matter in a practical and common sense manner, there is, in my view, nothing about the importance of the information or the practically of disclosing it or the extent of the burden imposed on the person skilled in the art who is left to rely on routine experimental that brings this cases within a case where disclosure should be made”. That observation aligns the best method requirement with the test for insufficiency that applied before the Raising the Bar Amendment Act.
SARB’s case on insufficiency was based on largely the same arguments as outlined above with respect to best method, with additional emphasis placed on a failure to describe details of the antenna scheme and provide adequate details of the wake-up signal adopted by it. In rejecting the insufficiency ground, Justice Besanko accepted the opinion of VMS’ witness that two of the figures of the patents and the discussion of those figures disclosed sufficient details of the wake up scheme and, for the same reasons provided on best method, the evidence of the experts established that the skilled addressee would know how to implement the invention using an antenna.
Lack of entitlement
SARB asserted that Mr Crowhurst, an individual who VMS contracted to assist with developing the invention, should have been named as a co-inventor. SARB’s case was that Mr Crowhurst was responsible for developing the antenna, testing various transceivers and developing a functioning system, and that this work made a material contribution to the invention.
The circumstances surrounding Mr Crowhurst’s evidence in chief are unusual and warrant mention. Mr Crowhurst declined to speak to SARB for the purpose of preparing affidavit evidence because he was bound by obligations of confidence to VMS. While Mr Crowhurst could be subpoenaed to attend at trial, that had the potential to disrupt the trial because the parties would not have advance notice of his evidence. Accordingly, the Court made orders for Mr Crowhurst to be deposed by counsel for SARB before Justice Besanko in late November 2020. The transcript of that oral examination was tendered at the trial as his evidence in chief and was intended to serve the same function as an affidavit before trial.
VMS objected to the admission of the transcript on the basis that Mr Crowhurst’s evidence was so unclear and confusing that it would create substantial prejudice to VMS if admitted. Justice Besanko ultimately overruled the objection. However, in various parts of the judgment his Honour criticises Mr Crowhurst’s evidence, including by stating that it was vague, difficult to follow and inconsistent in parts, that he would not place significant weight on it and, where there was conflict, he preferred the evidence of VMS’ witness. His Honour remarked at [347] that Mr Crowhurst’s “self assessment of the importance and value of his work was unreliable. His combativeness on the first day he was cross-examined was puzzling”.
Justice Besanko went on to conclude that Mr Crowhurst was not an inventor. His Honour pointed to the following reasons (amongst others) for arriving at this conclusion:
- up until the trial in the proceeding, Mr Crowhurst had not claimed to be the inventor and had in fact signed an agreement which contained an acknowledgment that the invention was solely invented by Mr Welch (the listed inventor);
- it was not clear whether Mr Crowhurst was claiming to be an inventor; and
- the work performed by Mr Crowhurst was based on common general knowledge or was routine.
As an aside, it was accepted by the parties that the operation of the transitional provisions of the Raising the Bar Amendment Act (which introduced new sections 22A and 138(4)) meant that an order for revocation on the ground of lack of entitlement could not be made unless the Court was satisfied that, in all of the circumstances, it was just and equitable to do so. Given his Honour’s findings, that discretion did not need to be considered.
Lack of fair basis
SARB argued that the claims which were broad enough to include a product which does not involve the use of wake-up signals were not fairly based because there was no real or reasonably clear disclosure in the specification of an invention which does not involve the use of wake-up signals.
Justice Besanko observed that Justice Yates had considered a materially similar ground in VMS 2013 and had rejected that ground for reasons that his Honour considered “cogent and correct” (at [528]). In VMS 2013, Justice Yates identified a number of passages in the specification that, in his view, described the operation of products that did not require a wake-up signal. In addition to adopting Justice Yates views, Justice Besanko pointed to the use of inclusive language in the specification and the existence of counterpart consistory clauses. His Honour said that there was nothing elsewhere in the specification which meant that the specification, read as a whole, did not correspond with those consistory clauses.
Lack of inventive step
SARB confined its inventive step case to obviousness in light of the common general knowledge alone. Justice Besanko referred to the following in reaching his conclusion that that the patents were inventive:
- he was not satisfied that, even if the skilled person would have been led to a sensor based solution (which he did not consider to be the case), they would not have been directly led to a magnetometer or an inductive proximity sensor (being features of the invention); and
- this was a case where secondary indicia of inventiveness were significant, in particular:
- the invention represented a long-felt want of overcoming the drawbacks of chalking (ie detecting overstay by marking tyres with chalk) which had existed since at least the mid-1970s; and
- the introduction of VMS’ overstay detection system in 2005 (which is an embodiment of the patents) resulted in a paradigm shift in the market.
False suggestion
SARB argued that, if the Court was to find that the relevant claims extended to an invention where the vehicle overstay is determined either in the DA or the DCA, then those claims were obtained by false suggestion or misrepresentation. SARB relied on prosecution correspondence from VMS’ patent attorneys to IP Australia in which they had said, for the purpose of distinguishing a novelty and inventive step citation, that in the claimed invention overstay was determined solely by the DA.
Justice Besanko rejected this argument and explained at [657]-[658] that “[a]ssuming fraud is not present and, as I have said, fraud is not alleged in this case, it is not sufficient to make out the ground of false suggestion or misrepresentation to prove simply that a false suggestion or misleading statement was made and nothing else….A submission about the meaning and effect of a piece of prior art will not necessarily involve a false suggestion or misrepresentation even where it transpires that it was wrong unless, it seems, it can be said that there was no basis for the submission”. His Honour was also not satisfied that in this case it could be inferred that the representation was objectively likely to contribute to the grant of the patent. With “file-wrapper-estoppel” not being available in Australia, no doubt this was a sore point for SARB – having VMS prosecuting the patent application to grant on the basis of a construction that it abandoned in the infringement proceeding.
Lack of clarity and failure to define the invention
SARB also argued that, if the Court was to find that the relevant claims extended to an invention where the vehicle overstay is determined either in the DA or the DCA, then those claims are not clear and do not define the invention because they do not set out how the identification of overstay is to be determined.
Justice Besanko dealt with these arguments briefly and found that:
- on lack of clarity, once the relevant claims were construed in the manner he had identified, there would be no difficulty for the skilled person to understand the boundaries of the claims; and
- a lack of definition will not be established unless a claim is “incapable of resolution by a skilled addressee by the application of common sense and common knowledge” (see [668]), and his Honour did not consider that that could be said of the claims in this case.
Conclusion
Unsurprisingly, given the history between these parties, SARB has appealed this decision. It will be interesting to see if history repeats itself and the parties settle before the Full Court gets the opportunity to deliver a judgment.