Costs are a very real and quantifiable concern in all types of commercial litigation, particularly patent litigation. They are usually a significant business expense and invariably require a commitment of significant resources and separate budget allocations. Accordingly, litigants and their advisors should be very conscious of whether an appropriate offer to settle the proceedings should be made, the timing of that offer and what should be offered.
These issues were considered in the recent Federal Court decision of Uniline Australia v SBriggs Pty Ltd (No. 2)  FCA 920. For one component of this litigation, the Court awarded indemnity costs in favour of Uniline, who was represented by DLA Phillips Fox, as it had made a genuine offer of compromise, which had not been accepted by the respondent.
The dispute began in early 2007 when SBriggs, who trades as Acmeda, sent various letters of demand to Uniline alleging that Uniline's product, a roller blind component known as the 'Unidrive', infringed SBriggs' patent and design.
Uniline commenced proceedings in the Federal Court of Australia alleging unjustified threats of patent and design infringement.
The design matter was settled out of Court and resulted in a declaration that SBriggs had made unjustified threats of design infringement, and undertakings from SBriggs that it would not make any further threats.
In the patent matter, by cross claim SBriggs alleged that Uniline had infringed its patent (which is the defence to a claim for unjustified threats) and by further cross claim Uniline sought to have SBriggs' patent revoked.
At trial, the Court found that the Unidrive did not infringe SBriggs' patent and restrained SBriggs from making any further threats of patent infringement. The patent was found to be valid.
Formal offer to settle made by Uniline
Prior to the trial Uniline had made a formal offer to settle, pursuant to Order 23 of the Federal Court Rules. The offer was that:
Uniline would give up its claim to a declaration that the letters sent by SBriggs constituted unjustified threats of patent infringement proceedings;
- Uniline would give up a claim to an injunction restraining SBriggs from making further threats;
- SBriggs must give up its cross-claim for relief based upon alleged infringement of the patent;
- Uniline would pay SBriggs $1,000; and
- The parties would bear their own costs. SBriggs rejected this offer and said that the offer involved no significant compromise and gave up nothing of substance.
The Court disagreed. It held that the offer made by Uniline gave SBriggs an opportunity to foreclose the litigation, avoid further costs being incurred and avoid the payment of costs incurred to the date of the offer to Uniline. This was a real, tangible and genuine offer.
Costs consequences arising from rejecting a genuine offer to setle
The failure to accept an offer made under Order 23 of the Federal Court Rules can result in some very significant costs consequences.
For example, if an applicant (as Uniline was in the unjustified threats proceedings) obtains a judgment better than the offer then a presumptive entitlement to indemnity costs arises from the date the offer was made. This presumption can only be displaced if there is a sufficient reason for the Court to otherwise order. There was no such reason here. Therefore, the Court ordered that SBriggs pay Uniline's costs of the unjustified threats proceedings on the indemnity basis from the date the offer was made.
Unfortunately, due to an oversight in the Federal Court Rules (since corrected by subordinate legislation of 2 August 2008) the same presumption did not apply to when a respondent (as Uniline was in the infringement proceedings) makes such an offer. Notwithstanding this, the Court ordered that SBriggs pay Uniline's costs of the infringement proceedings on the standard basis plus a 12% uplift.
Defending patent litigation proceedings with a revocation claim is the usual corollary in most patent disputes. Uniline's case was pleaded in such a way that the issue of validity would only arise if the Unidrive was found to have infringed SBriggs' patent. Uniline alleged that the patent was invalid because it was not fairly based, was not useful, lacked novelty and was obtained through fraud, false suggestion or misrepresentation.
As the Court rejected SBriggs' construction, the patent was found to be valid. However, the Court noted that if the claim was construed in the way SBriggs contended, its patent may be exposed to revocation on a number of grounds, particularly inutility and fair basis.
In relation to the issue of costs, the Court agreed that a cross-claim for revocation can be defensive. However, the Court said that grounds of invalidity might be raised which broaden the scope of the litigation and go beyond the facts, issue and law raised by the threats and infringement claims.
In this case, the issues of fair basis, inutility and lack of clarity were so intertwined with infringement that SBriggs was only able to obtain costs for the issues of novelty, obviousness and false suggestion. These costs were awarded on the standard basis.
In modern patent litigation, litigants need to be attuned to the various settlement opportunities available to them. One of the most effective weapons in the litigant's armoury is the formal offer to settle that can be made under most Court Rules. The failure to properly consider a genuine offer to settle can result in some unpleasant and sometimes unexpected consequences, such as an indemnity costs order.
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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.