Australia: Carving up costs in patent litigation when there is no clear winner

What you need to know

• A recent decision of the Full Court of the Federal Court of Australia demonstrates the way costs may be apportioned using an 'issue based' approach where the parties have each enjoyed a degree of success.
• The decision indicates that it is not only the number of issues on which a party has succeeded, but also the amount of time spent on those issues and their overall significance to the matter as a whole, that will come into play when costs are apportioned.
• With the potential for costs to be awarded in this manner, we may see future patent litigants giving greater consideration to the issues they press or concede, and placing less emphasis on 'peripheral' issues that are not key issues in a dispute.

Apportioning costs in any litigation can be difficult, but particularly so in patent litigation proceedings where there are often multiple issues being tested on both the validity and infringement of the patent in suit. Where more than one patent is involved in proceedings, those issues can multiply.

The question is: how should costs be divided when there is no clear 'winner' and each party has been successful on one or more issues?

This was the question considered in Actavis Pty Ltd v Orion Corporation (No 2) [2016] FCAFC 159, a recent costs decision in the Full Court of the Federal Court of Australia. The decision exemplifies the apportionment of costs using an 'issue based' approach in a case where the appellants and respondents each had some measure of success in the both the trial and appeal proceedings.

The parties' successes

In the appeal against the decision of the trial judge on the substantive issues in the case¹, the appellants were successful in their appeal against findings that they had infringed two of the claims of the patent in suit, and were also successful in their appeal against the finding that Novartis Australia had standing to sue for infringement as an exclusive sub-licensee of the patent (via Novartis as exclusive licensee).

The respondents succeeded in resisting the appellant's on the validity of the patent (on the grounds of lack of fair basis, lack of clarity and definition), and the issue of Novartis' standing as the exclusive licensee.

The parties agreed that an 'issue based' approach to determining costs should be adopted.

Costs of the appeal

Bearing in mind their respective wins, the appellants argued that they should pay 60% of the respondents' costs of the appeal while the respondents argued that this amount should be 80%.

The Full Court made an award of 80%, accepting the respondents' arguments that:

• they had succeeded on the major issue in the appeal, being the construction of the patent specification (with its consequent impact on the fair basis ground)
• the respondents had conceded the issue of standing so far as Novartis Australia was concerned
• although the appellants were successful on the issue of infringement, that issue did not take up much time spent on the appeal

Date from which costs could be recouped on issue of standing as exclusive licensee

The Full Court next considered the costs associated with the question of standing of each of Novartis and Novartis Australia to sue for infringement. Novartis was found to have standing only from 7 March 2014 (the date of the exclusive licence). The relevant date for Novartis Australia (if it had been found to have standing) would have been 11 March 2014, being the date of the exclusive sub-licence. On that basis, the Full Court made orders for the payment of the appellants' costs thrown away² as a result of the joinder of Novartis up until 7 March 2014, and as a result of the joinder of Novartis Australia (both before and after 11 March 2014).

Other costs in first instance decision

The Full Court then considered the effect of its finding that the appellants did not infringe two of the claims of the patent in suit, against a background in which the finding that the appellants had infringed four further claims was undisturbed and the appellants' validity attacks were unsuccessful.

The trial judge had ordered the appellants to pay two thirds of the costs of the claim and cross-claim. The appellants argued that this should be reduced to 50% in light of their success on appeal, while the respondents argued for a figure of 60%. The Full Court made an order consistent with the respondents' position, on the basis that the respondents had overall been successful in vindicating their rights and in defending the appellants' attacks on the validity of the patent.

Key takeaways

Where determining an overall 'winner' or 'loser' in patent litigation is difficult, we can expect to see more costs decisions of this type, in which the outcomes with respect to issues are examined in detail. We could also see similar types of decisions in other complex litigation matters.

As this case demonstrates, in an issues based approach to the award of costs, it is not only the number of issues a party has succeeded on, but also the amount of time spent on those issues and the overall significance of the issues to the matter as a whole that are relevant to determining the award of costs. This has clear implications for the conduct of patent litigation in terms of the grounds that are pursued and the way in which those grounds are pressed, including whether appropriate concessions are made. It is possible that this approach may lead to a greater focus on the key issues in dispute rather than on more peripheral 'backup' issues, but this is a matter that remains to be seen.

Footnotes

¹ Actavis Pty Ltd v Orion Corporation [2016] FCAFC 121

² Costs thrown away generally refer to costs incurred by one party and wasted as a result of the other party's action

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories