When supply of a staple commercial product is not infringement

Hood v Down Under Enterprises International Pty Ltd [2022] FCAFC 69

4 May 2022

Full Federal Court of Australia

Yates, Moshinsky and Rofe JJ

Background

Mr Hood, the applicant, found a native shrub, Kunzea ambigua, growing on his farm in Tasmania. He asked the University of Tasmania whether the shrub might contain oil of commercial use, and the University provided him with the chemical composition of the oil from the shrub. This identified constituents present in other plant oils. Mr Hood asked his family and friends to test the oil, obtaining anecdotal evidence that it demonstrated antimicrobial and anti-inflammatory activities. He then sought patent protection for this “new essential oil” with therapeutic properties.

Mr Hood then brought patent infringement proceedings against five businesses which sold oil derived from Kunzea ambigua (Ka Oil) products.

At first instance, two of the businesses were found to infringe, while the other three, Down Under Enterprises International Pty Ltd (Down Under), Native Oils Australia Pty Ltd (Native Oils) and New Directions Australia Pty Ltd (New Directions), were not. Mr Hood appealed the non-infringement finding. They cross-appealed in respect of the primary judge’s finding that the relevant patent claims were not obvious.

Key Issues

The key issues in the case centre around the application of s 117 of the Patents Act which deals with indirect patent infringement. Following the revocation at first instance of a number of the patent claims, the only claims remaining were method of treatment (MoT) claims. Businesses selling the Ka Oil products were not therefore directly infringing. S 117 provides however that where a use of a product would infringe a patent, a party supplying the product may be liable for patent infringement if:

1. The product is capable of only one reasonable use, and that use is infringing;
2. The product is not a staple commercial product, and the supplier had reason to believe it would be put to an infringing use; or
3. The use of the product in accordance with the instructions or any inducement to use the product is infringing.

In the appeal, the Full Federal Court considered whether the relevant products were “staple commercial products”, which determined whether the second limb of s 117 above was engaged.

Outcome

Staple commercial product

The Full Court affirmed the first instance finding that Ka Oil was a staple commercial product, applying the test set out by the High Court in Northern Territory of Australia v Collins (2008) 235 CLR 619 of whether the relevant product was “supplied  commercially for various uses”, and rejecting Mr Hood’s submissions that the primary judge failed to take into account various evidence of the expert witness called by Mr Hood. The Full Court upheld the primary judge’s findings that Ka Oil is a raw material supplied commercially in that form or as an ingredient in other products, and that it is a basic product with a wide variety of possible uses, including very broad therapeutic uses on account of its antimicrobial and anti-inflammatory activities.

The finding that Ka Oil was a staple commercial product had the consequence that limb (b) above of s117 was not engaged, requiring Mr Hood to succeed on the basis of limb (a) or (c).

Applicability of s117 to overseas sales

Mr Hood alleged that Down Under infringed under s117(c). However Down Under supplied Ka Oil to overseas customers only. This raised the issue of whether s117 applies to export sales, i.e. the supply of products to customers for use outside ‘the patent area’. The primary judge had concluded that s117 only applied where the supply of products took place within Australia, and that s117 is not directed to situations where use of the product is to take place outside of Australia. In such a case the use would not constitute an infringement.

The Full Court concurred with the primary judge’s reasoning on these points, and his finding that Mr Hood had not established a supply by Down Under in the patent area.

Inducement under s117(c)

The MoT claims of the patent were limited to topical use of the Ka Oil. New Directions supplied Ka Oil to businesses and consumers in Australia. New Directions’ website stated in relation to Ka Oil: “has traditionally been used for relieving muscular aches and pain”; and “has also been used to relieve symptoms of cold and flu when used in steam inhalations.” The primary judge found that since inhalation of Ka Oil was outside the scope of the MoT claims, the second statement could not amount to an inducement to infringe the patent. Further, the first statement said nothing about how the Ka Oil was to be administered, and that the reader could just as easily infer that the Ka Oil was to be used in a bath or inhaled as applied topically. He therefore held that this statement did not encourage the use of the Ka Oil for an infringing purpose. The Full Court found no basis on which to disturb these findings.

Obviousness

The Full Court also rejected the cross-appellants’ challenge to the primary judge’s conclusions on obviousness, although given that the Full Court had affirmed the findings of non-infringement, this was not critical to the outcome.

Hood’s application for special leave to appeal to the High Court was dismissed.

Implications

The most interesting aspect of this case is the approach to questions arising out of s 117. It was stated in Collins that “staple commercial product” should be given a broad interpretation, and the test from Collins that the product should be supplied commercially for various uses appears to present a low threshold. Yet there are few examples in the case law where the courts have found that a product supplied is a staple commercial product, and none where the product supplied was a pharmaceutical. As the applicant’s Ka Oil in this case was ARTG-listed with several indications, this case goes some way towards filling the gap, although further case law is required to fully define the circumstances in which pharmaceuticals may be considered staple commercial products.

The case does however provide confirmation that the supply of a product to be put to an infringing use to a person outside Australia will not amount to an infringement by the supplier under s 117. So where, as in this case, there are no product claims in issue (or method claims that could support a product-by-process infringement action), provided the supply is an export (i.e. the immediate recipient is outside Australia), the supply should not infringe in Australia.

Aside from s. 117, the judgment is also a reminder of the pitfalls in seeking to prove that an invention is obvious based on evidence that the skilled person would routinely have taken the same steps as the inventor. In this case, the respondents’ evidence involved presenting the skilled person with a sample of Kunzea ambigua to investigate, which omitted from consideration whether the skilled person would have interest in exploring the species. This was fatal to the respondents’ obviousness case.

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