Hood v Down Under Enterprises International Pty Limited  FCAFC 69
Section 117 – staple commercial product – whether essential oil from Kunzea ambigua is a staple commercial product – inventive step – misleading or deceptive conduct – representations on a website - costs
At first instance, the patentee, Mr Hood, brought five sets of patent infringement proceedings against five different parties, alleging infringement of his Patent, which was for methods of using an essential oil derived from the shrub Kunzea ambigua (the Oil). The claims were to methods of treatment in which the Oil, obtained by steam distillation of the green matter of the shrub, is applied topically as a treatment to relieve pain, minimize bruising, or to assist in healing, including for specified ailments.
In the proceedings involving Down Under Enterprises International Pty Ltd, New Directions Australia Pty Ltd and Native Oils Pty Ltd, the trial judge, Nicholas J, dismissed Mr Hood’s claim of infringement based on s 117. Mr Hood appealed, and Down Under Enterprises and New Directions cross-appealed. In particular: (a) Mr Hood appealed the conclusion that Down under Enterprises, Native Oils and New Directions did not infringe the Patent under s 117; (b) Down Under Enterprises and New Directions appealed the conclusion that certain of the claims of the Patent were not invalid for inventive step; (c) Mr Hood appealed the conclusion that there should be no award of additional damages; (d) Down Under appealed the conclusion that it had engaged in misleading or deceptive conduct; and (e) Mr Hood challenged the conclusion that each respondent should pay a fixed portion of Mr Hood’s costs, alleging that they should be jointly and severally liable.
The primary judge found that the Oil was a staple commercial product, by reference to the Full Court and High Court decisions in Northern Territory v Collins and the Full Court’s decision in AstraZeneca AB v Apotex Pty Ltd. In Collins, the High Court had found that standing cypress pine trees were a staple commercial product.
The primary judge considered the decisions of Hayne J and Crennan J in Collins, and observed that the plurality in AstraZeneca (with whom Jessup J agreed on this issue) noted that the considerations relevant to the question of whether a product is a staple commercial product include how widely the product is used and for what range of purposes. The primary judge noted that, unlike AstraZeneca (where rosuvastatin could only be used for the prevention or treatment or a particular disease), in the present case, the therapeutic uses to which the Oil could be put were very broad indeed. His Honour found that the Oil was commonly used for its perceived therapeutic properties; that the evidence showed that the Oil was considered to be a commodity or a raw material; and that the Oil is supplied in its raw state for use as an ingredient to manufacture various consumer products (including aromatherapy and for hair and skin care), which was not was an uncommon or de minimis use.
The primary judge concluded that the Oil was a staple commercial product for four reasons. First, the Oil is a raw material supplied commercially for use either in its raw form or as an ingredient in a range of hair and skin products. It is a basic product with a wide variety of possible uses. Secondly, the Oil may be used for a range of therapeutic purposes due to its anti-inflammatory and antimicrobial properties. The patented methods of treatment did not extend to many of the uses for which the Oil is supplied (such as aromatherapy, or use in a blend of essential oils). Thirdly, the Oil had been registered on the Australian Register of Therapeutic Goods since 2002 for a wide range of indications, not all of which were within the scope of the claims. Lastly, the crucial question is whether the relevant product is supplied commercially for various uses, and the evidence suggests that it is.
The primary judge concluded that, even if the relevant class of products is narrowly defined as consisting of essential oils derived from shrubs of Kunzea or Kunzea ambigua, the products would still to be treated as staple commercial products. For that reason, the case against Down under Enterprises, New Directions and Native Oil failed.
Mr Hood submitted that the primary judge erred, because he failed to give sufficient weight to Mr Hood’s expert evidence as to supply and uses of the Oil. The Full Court observed that Mr Hood’s submissions conflated any asserted “therapeutic use” of the Oil, whatever the method of administration or condition, with a method of treatment falling within the scope of the claims. On Mr Hood’s case, any “therapeutic use” of the Oil was to be excluded from the consideration of whether the Oil is a staple commercial product as it was a use falling within the patent monopoly.
The Full Court found that these submissions failed to take into account that the method of treatment claimed was limited to a method of treatment in which the essential oil is applied topically, which did not include other modes of treatment, such as those involving the inhalation of emitted vapours from the essential oil, and that the primary judge was justified in rejecting the expert’s evidence. The Full Court expressly did not consider whether the correct class of product was the broader class of all essential oils from native shrubs or the narrower class of Kunzea ambigua oil, given that the primary judge found that even Kunzea ambigua Oil was a staple commercial product. The ground of appeal was rejected and, accordingly, the Full Court held that the primary judge did not err in concluding that the Oil is a staple commercial product and that Down Under Enterprises, Native Oils and New Directions did not infringe the Patent.
Mr Hood also appealed the primary judge’s conclusion that section 117 does not apply to supply by the respondents to customers outside the patent area. As the Full Court made clear, although the primary judge had found that the product must be supplied within the patent area, his Honour had found that: (a) a patent could be infringed under s 117(2)(a) where a product with only one reasonable use was supplied within the patent area, even if the product was for use outside the patent area; (b) a patent would not be infringed under s 117(2)(b) where there was no reason to believe that the product would be used in the patent area; and (c) a patent could be infringed under 117(2)(c) where the product is supplied in the patent area with instructions or inducements for use, even if the supplier had no reason to believe that the person who had been given the relevant instructions or inducement would follow that instruction or act.
The question raised by Mr Hood was as to the primary judge’s conclusion on s 117(2)(b). However, Mr Hood did not challenge the conclusion that it is necessary to show that the supply of the product is in the patent area. The Full Court found that no error had been shown in the primary judge’s conclusion that Mr Hood had not established any relevant supply by Down Under Enterprises in the patent area (nor in his Honour’s findings as to whether the Oil was a staple commercial product), and therefore that it was not necessary to consider the correctness of his Honour’s construction of ss 117(2)(b) or 2(c).
The Full Court also rejected a submission that the primary judge had erred in finding that New Directions did not provide instructions for “topical use”. That submission was inconsistent with the primary judge’s construction of the claims, which was not challenged.
We make two observations about the questions of infringement under section 117 raised in this case.
First, it is exciting to see a case, after Collins, in which a product is found to be a staple commercial product. The primary judge’s and Full Court’s reasoning might equally be applicable to pharmaceutical products which can be used for non-patented as well as patented uses. We can expect to see this defence agitated in cases of patents for methods of treatment, although it may run aground on the question of the specificity by which the product is defined.
Second, although we agree with the Full Court that s 117 is not directed to situations where the use of the product is to take place outside the patent area, we respectfully question whether the primary judge’s conclusions in relation to s 117(2)(a) and (c) are consistent with that analysis. The Full Court did not need to revisit his Honour’s analysis of those issues: we will watch with interest to see how future courts deal with these questions.
Down Under Enterprises, Native Oils and New Directions challenged the primary judge’s finding on inventive step. The respondents had challenged whether the patent claimed involved inventive step on the basis of common general knowledge, but failed because the primary judge found that their submissions took, as their starting point, the hypothetical situation where the skilled addressee (a microbiologist) was provided with a sample of Kunzea ambigua for evaluation, but did not explain how Kunzea ambigua would have presented itself as a candidate in the first place.
The Full Court noted that there was no challenge to the conclusion that Kunzea ambigua had not been used for therapeutic purposes before the priority date and concluded that it was open to the judge to reject the respondents’ submissions as to lack of inventive step, in circumstances where there was nothing in the evidence that would indicate that the skilled addressee would have any reason to test Kunzea ambigua for medicinal uses.
The Full Court’s reasoning emphasises the importance of ensuring that inventive step evidence provides a basis for the particular starting point which is adopted by the party seeking to revoke a patent (whether or not that is the same starting point that the patentee had). If there is not, the inventive step challenge will very likely fail.
Australian Consumer Law
The primary judge found that Down Under Enterprises had engaged in misleading or deceptive conduct because the website www.downunderenterprises.com represented that Down Under Enterprise’s Kunzea ambigua oil products were listed on the Australian Register of Therapeutic Goods. However, the unchallenged evidence was that Down Under Enterprises did not own or control the website – rather, it was owned and maintained by a different entity, Down Under USA. The Full Court therefore overturned the primary judge’s finding, observing that there was otherwise no basis on which to conclude that Down Under Enterprises had contravened ss 18 or 29(1)(a) of the Australian Consumer Law.
The primary judge had made orders that the cross-claimants below were each liable for an equal portion of Mr Hood’s costs in respect of those parts of the cross claim which failed (manner of manufacture and inventive step). Mr Hood submitted that the parties should be jointly and severally liable. The Full Court found that the primary judge had not made any error.