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Collins v Northern Territory (Corrigendum dated 24 September 2007) [2007] FCAFC 152 (20 September 2007)

Last Updated: 23 November 2009

FEDERAL COURT OF AUSTRALIA

Collins v Northern Territory [2007] FCAFC 152

VINCENT AND MARYANN COLLINS v NORTHERN TERRITORY OF AUSTRALIA
NTD 2 OF 2007

FRENCH, BRANSON AND SUNDBERG JJ
20 SEPTEMBER 2007 (CORRIGENDUM DATED 24 SEPTEMBER 2007)
PERTH (HEARD IN DARWIN)

IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY	NTD 2 OF 2007

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	VINCENT AND MARYANN COLLINS Appellant
AND:	NORTHERN TERRITORY OF AUSTRALIA Respondent

JUDGES:	FRENCH, BRANSON AND SUNDBERG JJ
DATE:	20 SEPTEMBER 2007 (CORRIGENDUM DATED 24 SEPTEMBER 2007)
PLACE:	PERTH (HEARD IN DARWIN)

CORRIGENDUM

1 In the Reasons for Judgment of the Full Court published on 20 September 2007, after the first quote on page 16, delete the words "This was said to be" and insert:

"The inapplicability of the doctrine to common articles of merchandise was said to rest" ...

Associate:
Dated: 24 September 2007

FEDERAL COURT OF AUSTRALIA

Collins v Northern Territory [2007] FCAFC 152

INTELLECTUAL PROPERTY – patents – infringement – contributory infringement – supply of a product – what constitutes supply – reason to believe that person supplied would put product to infringing use – criteria of reason to believe – staple commercial product exclusion – statutory licence to enter and remove timber of particular species – timber used to produce oil according to patented process – whether grant of statutory licence constituted supply for purposes of contributory infringement – whether mere permission to collect constitutes supply – whether statutory licence confers realty interest in the nature of profit a prendre – whether grant of realty interest constitutes supply – whether unmilled standing timber the subject of the licence constituted a staple commercial product – timber commercially useable for non-infringing purposes – relevant product class – unmilled timber

PROPERTY LAW – licence – profit a prendre – interest in the nature of profit a prendre – statutory licence to cut and remove timber – contractual licences compared

WORDS AND PHRASES – "supply" – "staple commercial product" – "reason to believe"

Crown Lands Act 1992 (NT)
Income Tax Assessment Act 1936(Cth) s 26(f)
Patent Act 1977 (UK) s 60
Patents Act 1952 (US) s 271
Patents Act 1990 (Cth) ss 65, 117

European Economic Community Council Agreement Relating to Community Patents (Luxembourg, 15 Dec 1989) Art 26

Adhesive Dry Mounting Co Ltd v Trapp & Co (1910) 27 RPC 341 cited
Anaesthetic Supplies Pty Ltd v Rescare Ltd [1994] FCA 1065; (1994) 50 FCR 1 considered
Aro Manufacturing Co Inc v Convertible Top Replacement Co Inc [1964] USSC 118; (1964) 377 US 476 cited
Ashgrove Pty Ltd v Deputy Commissioner of Taxation (1994) 124 ALR 315 cited
Australian Softwood Forests Pty Ltd v Attorney General (NSW) [1981] HCA 49; (1981) 148 CLR 121 cited
Belegging-en Exploitatiemaatschappij Lavendeer v Witten Industrial Diamonds Ltd (1979) 5 FSR 59 cited
Beloit Canada Ltd v Valmet Oy (1988) 21 CPR (3d) 1 FCA cited
BEST Australia Ltd v Aquagas Marketing Pty Ltd (1988) 83 ALR 217 cited
Bristol-Myers Squibb Co v FH Faulding & Co Ltd [2000] FCA 316; (2000) 97 FCR 524 considered
Carbice Corporation of America v American Patents Development Corporation 283 US 27 (1931) cited
Caterpillar Inc v John Deere Ltd [1999] FCA 1503; (1999) 48 IPR 1 cited
CCOM Pty Ltd v Jiejing Pty Ltd [1994] FCA 1168; (1994) 51 FCR 260 cited
Chemical Company v Rohm and Haas Company 448 US 917 (1980) cited
Corporate Affairs Commission v ASC Timber Pty Ltd (1989) NSWLR 577 cited
Dawson Chemical Co v Rohm & Haas Co [1980] USSC 171; 448 US 176 (1980) cited
Dow Chemical AG v Spence Bryson & Co Ltd (1982) 8 FSR 397 cited
Dunlop Pneumatic Tyre Co Ltd v David Moseley & Sons Ltd [1904] 1 Ch 612 cited
Faurecia Automotive Seating Canada Ltd v Lear Corp Canada (2004) FC 421 cited
George v Rockett [1990] HCA 26; (1990) 170 CLR 104 cited
Gibson and Campbell v Brand (1841) 1 WPC 631 cited
Harper v Minister for Sea Fisheries [1989] HCA 47; (1989) 168 CLR 314 cited
Henry v AB Dick Co, [1912] USSC 80; 224 US 1, 48 (1912) cited
Hexal Australia Pty Ltd v Roche Therapeutics Inc (2005) 66 IPR 325 cited
Independent Oil Industries Ltd v Shell Co of Australia Ltd (1937) 37 SR (NSW) 394 cited
Kalen Co v Harper Bros [1911] USSC 132; 222 US 55 (1911) cited
Kursell v Timber Operators and Contractors Ltd [1927] 1 KB 298 cited
Lavery v Pursell (1888) 39 Ch D 508 cited
Leitch Manufacturing v Barber Co 303 US 458 (1938) cited
McCauley v Federal Commissioner of Taxation [1944] HCA 18; (1944) 69 CLR 235 cited
Marshall v Green (1875) 1 CPD 35 cited
Metro-Goldwyn-Mayer Studios Inc v Grokster Ltd 545 US 913 (2005) cited
Mercoid Corporation v Mid-Continent Investment Co [1944] USSC 28; 320 US 661 (1944) and [1944] USSC 29; 320 US 680 (1944) cited
Molnlycke v Procter & Gamble (No 4) [1992] RPC 21 cited
Morton-Norwich Products Inc v Intgercen Ltd [1978] RPC 501 cited
Motion Picture Patents Co v Universal Film Manufacturing Co [1917] USSC 75; 243 US 502 (1917) cited
Murex Diagnostics Australia Pty Ltd v Chiron Corp [1995] FCA 1040; (1995) 30 IPR 277 cited
National Provincial Bank Ltd v Ainsworth [1965] UKHL 1; [1965] AC 1175 cited
Nu-Pulse New Zealand Ltd v Milka-Ware (ANZ) Ltd (High Court, Hamilton CP 8/97 14/10/99 Master Faire) cited
Pavel v Sony Corporation [1993] 20 FSR 177 cited
Permanent Trustee Australia Ltd v Shand (1992) 27 NSWLR 426 cited
Ramset Fasteners (Aust) Pty Ltd v Advanced Building Systems Pty Ltd (1999) 164 ALR 239 cited
R v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; (1982) 158 CLR 327 cited
Rescare Ltd v Anaesthetic Supplies Pty Ltd (1992) 111 ALR 205 considered
Ryan v Lum (1989) 14 IPR 513 cited
Sartas No 1 Pty Ltd v Koukourou & Partners Pty Ltd [1994] FCA 1529; (1994) 30 IPR 479 cited
Sony Corporation of America v Universal City Studios, Inc [1984] USSC 14; 464 US 417 (1984) cited
Spotless Group Ltd v Proplast Pty Ltd (1987) 10 IPR 668 cited
Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58; (2005) 224 CLR 193 cited
South Devon Water Board v Gibson [1955] QB 448 cited
Sykes v Howarth (1879) 12 Ch D 826 cited
Theta Developments Pty Ltd v Leonardis (2002) 59 IPR 368 cited
Thomas v Sorrell (1673) Vaugh 330 cited
Townsend v Haworth LR 12 CD 830 cited
Unimin Pty Ltd v Commonwealth (1974) 2 ACTR 71 cited
Vanston v Malura Pty Ltd (1988) 50 SASR 110 cited
Walker v Alemite Corporation [1933] HCA 39; (1933) 49 CLR 643 considered
Warren v Nut Farms of Australia Pty Ltd (1981) WAR 134 cited
WA Pines Pty Ltd v Bannerman [1980] FCA 79; (1980) 30 ALR 559 cited
West Surrey Water Co v Guardians of Chertsey Union [1894] 3 Ch 513 cited
Whangapiarita v Allflex New Zealand Ltd (1995) 5 NZBLC 103,733 cited

Benyamini A, "Indirect infringement of patents in Israel: judge-made law" in Vaver and Bently (ed) Intellectual Property in the New Millenium (CUP, 204)
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Macquarie Dictionary
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Oxford English Dictionary
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The Australian Oxford Dictionary

VINCENT COLLINS AND MARYANN COLLINS v NORTHERN TERRITORY OF AUSTRALIA
NTD 2 OF 2007

FRENCH, BRANSON AND SUNDBERG JJ
20 SEPTEMBER 2007
PERTH (HEARD IN DARWIN)

IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY	NTD 2 OF 2007

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	VINCENT COLLINS AND MARYANN COLLINS Appellant
AND:	NORTHERN TERRITORY OF AUSTRALIA Respondent

JUDGES:	FRENCH, BRANSON AND SUNDBERG JJ
DATE OF ORDER:	20 SEPTEMBER 2007
WHERE MADE:	PERTH (HEARD IN DARWIN)

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The orders made by the primary judge on 8 December 2006 be set aside.

3. The respondent pay the appellants’ costs of the appeal.

4. The matter, including the question of the costs of the first instance hearing to date, be remitted to the primary judge for such further hearing as his Honour deems necessary and determination in the light of the joint reasons for judgment of Branson and Sundberg JJ.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY	NTD 2 OF 2007

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	VINCENT COLLINS AND MARYANN COLLINS Appellant
AND:	NORTHERN TERRITORY OF AUSTRALIA Respondent

JUDGES:	FRENCH, BRANSON AND SUNDBERG JJ
DATE:	20 SEPTEMBER 2007
PLACE:	PERTH (HEARD IN DARWIN)

REASONS FOR JUDGMENT

French J
Introduction

1 Since 21 January 1999 Vincent and Maryann Collins have been the registered owners of Australian Patent No 742711 entitled "Methods of Producing Essential Oils from the Species of the Genus Callitris". The patent claims a process for producing a blue, guaiazulene-containing oil from a mixture of the bark and wood of the trees of the species Callitris Intratropica. In 1998 and 1999 the Northern Territory Government (the Northern Territory) granted four miscellaneous licences under the Crown Lands Act 1992 (NT) to the Australian Cyprus Oil Company Pty Ltd (ACOC). The licences entitled ACOC to take timber from the failed Howard Springs Plantation. The timber was from trees of the species Callitris Intratropica. They had originally been grown by the Northern Territory for use for commercial timber and associated products. However in or about November 1995 the Northern Territory had decided, upon advice, that they were not of sufficient quality for their initially intended use for commercial timber. The timber was used by ACOC to produce blue cyprus oil.

2 Mr and Mrs Collins commenced proceedings in this Court on 4 November 2005. They alleged that by issuing the licences to ACOC the Northern Territory had infringed their patent. In characterising the grant of the licences as infringement of the patent the Collins invoked s 117 of the Patents Act 1990 (Cth) (the Act) which extends the concept of infringement to cover so called contributory infringement. They claimed that, by granting the licences the Northern Territory had supplied the timber, that the timber was not a staple commercial product and that the Northern Territory had reason to believe that it would be put to an infringing use.

3 Mansfield J directed a separate trial of the issues as to whether:

(a) the Northern Territory had supplied a product to ACOC, the use of which would infringe the patent; and

(b) the product if so supplied, was capable of only one reasonable use, namely that of producing a blue coloured oil by the process protected by the patent or the product is not a staple commercial product and the Northern Territory had reason to believe it would be put to the infringing use complained of by the Collins.

In hearing the separate issues, his Honour assumed the validity of the patent and that ACOC was infringing it. He found, inter alia, that the grant of the licences did not constitute a supply of the timber within s 117 of the Act and that it was a "staple commercial product" within the meaning of that section. On this basis the grant of the licences did not come within the expanded concept of infringement through contributory infringement as defined in that section. His Honour dismissed the Collins’ application. They have appealed against his decision.

4 The issues of law and fact raised by this appeal are not without difficulty. In some respects they are novel. The appeal raises for consideration what constitutes supply of a product for the purposes of the contributory infringement provisions of the Act. It also raises the question of what constitutes a staple commercial product, the supply of which is excluded from the scope of contributory infringement unless accompanied by instructions or inducement for infringing use.

5 In my opinion, the licences granted by the Northern Territory to ACOC in the nature of a realty interest akin to a profit a prendre. They did not amount to the supply of the timber. And if that conclusion be incorrect, the timber itself was a staple commercial product within the meaning of s 117. For these reasons in my opinion the appeal should be dismissed. Branson and Sundberg JJ are of a different view and the appeal will therefore be allowed.
Statutory framework

6 Section 117 of the Act extends the concept of infringement to "contributory infringement". It provides:

(1) If the use of a product by a person would infringe a patent, the supply of that product by one person to another is an infringement of the patent by the supplier unless the supplier is the patentee or licensee of the patent.

(2) A reference in subsection (1) to the use of a product by a person is a reference to:

(a) if the product is capable of only one reasonable use, having regard to its nature or design – that use; or
(b) if the product is not a staple commercial product – any use of the product, if the supplier had reason to believe that the person would put it to that use; or
(c) in any case – the use of the product in accordance with any instructions for the use of the product, or any inducement to use the product, given to the person by the supplier or contained in an advertisement published by or with the authority of the supplier.

7 "Supply" is defined inclusively in Schedule 1 of the Act:

"supply" includes:

(a) supply by way of sale, exchange, lease, hire or hire-purchase; and

(b) offer to supply (including supply by way of sale, exchange, lease, hire or hire-purchase).

Also relevant are the provisions of the Crown Lands Act 1992 (NT) which provide for the grant of licences in relation to crown lands. The relevant section is s 91 which provides, inter alia:

Miscellaneous licences

(1) The Minister may grant licences to go on Crown lands, or lands subject to a lease granted, whether before or after the commencement of this Act, on behalf of the Crown, or dedicated or reserved lands, and to take from the land –

(a) live or dead timber or wood;

(b) stone, shell, sand, gravel, clay or earth, not being or supposed to be metalliferous;
(c) salt;
(d) seaweed;
(e) bark; and
(f) any other substance or article the property of the Territory.

(2) Licences in pursuance of this section shall not be granted for a period longer than 12 months.

Subsection (3) excludes certain categories of land from the application of the licensing power.

8 Section 94 provides that the fees payable in respect of a licence are those prescribed under s 8 of the Crown Lands Act "... or such other fees, not exceeding those, if any, so prescribed, as the Minister thinks fit and specifies in the licence document." Section 94(2) provides:

A licence granted under this Act (other than a licence granted under s 92 or 93) is subject to such terms and conditions as are prescribed in the Regulations, or such other terms and conditions, not inconsistent with those, if any, so prescribed, as the Minister thinks fit and specifies in the licence document.

9 Reference should also be made to s 102, which makes it an offence to fell trees or saplings growing on Crown land or to cut, saw, remove or sell timber lying or being on that land other than in pursuance of a lease or licence or other lawful authority.

10 The Crown Lands Regulations provide for applications for miscellaneous licences. Such applications are required to be in writing and to specify, inter alia, the purpose for which the licence is required and to be accompanied by the prescribed fee (reg 38). The Minister is empowered to approve or refuse such applications or to return them for amendment (reg 39). Such licences may be granted for terms of 3, 6 or 12 months (reg 41) and under reg 44 it is provided:

The holder of a miscellaneous licence may take and remove from the land included in his or her licence only that substance or material for which the licence is issued.

There is also provision for royalties to be imposed (reg 46):

Royalties
The Minister may determine a royalty on the material removed from the land to which a miscellaneous licence relates, and the amount of the royalty, if any, and the time and place of payment shall be specified in the licence.

Regulation 48 provides for forfeiture of miscellaneous licences for breach in the following terms:

Where the holder of a miscellaneous licence has failed to comply with –

(a) a condition of the licence; or
(b) a requirement of, or under, this Division,

the Minister may, by notice in writing to the holder specifying the failure, forfeit the licence.

The licences granted from 1993 in relation to Howard Springs Plantation

11 As appeared from the affidavit of Paul Wharan, the Director, Land Administration of the Northern Territory, trees of the species Callitris Intratropica were planted in the Howard Springs Plantation in the late 1960s. Between 1993 and 2001 responsibility for issuing permits or licences in respect of the plantation rested with the former Conservation Commission of the Northern Territory and thereafter the Department of Planning and Infrastructure.

12 On 30 April 1993 the Conservation Commission issued a permit to Mr Collins "to carry on trade or commerce in Howard Springs Forest Park". The trade or commerce permitted was identified in a schedule to the permit as "Crop thinning of Callitris Intratropica". The permit was for a period of 12 months. It related to a portion of the plantation known as Compartment 13B. It provided for a royalty of 20 cents per stem felled. The permit was backed by an Operational Agreement between Mr Collins and the Conservation Commission.

13 A dispute arose between the Northern Territory and Mr Collins about whether he had been issued with a second permit for the period 18 October 1994 to 17 October 1999. That dispute is not material for present purposes. However at some point during that period a reserve which had existed over Howard Springs Plantation was revoked and it became Crown Land subject to administration by the Department of Planning and Infrastructure.

14 On 16 April 1996 a miscellaneous licence 1839 was issued to Blue Cyprus Holdings Pty Ltd under the Crown Lands Act. It was a lease "to go upon Crown Land ... and to take therefrom [Callitris Intratropica] during the period from the 1^st day of April 1996 to the 31^st day of March 1997 ...". Special conditions attached to the licence imposed a royalty of $2.50 per tree collected. They required retention of a minimum number of 100 trees per hectare which could be either Callitris or Eucalypts. Stumps were to be removed and, after extraction, the site levelled to a standard which would allow reliable access by a tractor/slasher.

15 On 3 July 1998, following a competitive tender process, the first of four miscellaneous licences was issued to ACOC under the Crown Lands Act. It was entitled "Licence to go Upon Crown Lands and Take there from Timber". Its term ran from 6 July 1998 to 6 August 1998. It covered part of portion 2820 comprising an area of about one hectare. "Conditions" attaching to the licence included the following:

(i) A royalty payment of $2.50 per tree (Condition 2).

(ii) A statement that the licence carried no right to a lease nor did it entitle the licensee to use the land for residential purposes (Conditions 4 and 5).

(iii) A power to terminate on 14 days’ notice for breach of any of the conditions (Condition 4).

(iv) A requirement that the licensee "will, in respect of the licensed land ensure that all plantation trees including stumps are removed". (Condition 14)

(v) A requirement that the licensee rehabilitate the site to a standard allowing reasonable access by a tractor/slasher (Condition 15).

(vi) A statement that, absent compliance with the two preceding conditions, the Northern Territory would have "a right to enter on to the licensed land and do all things necessary to that end" at the expense of the licensee (Condition 17).

16 A second miscellaneous licence was issued to ACOC on 10 May 1999 allowing it to go on Part Sections 2820 and 2821 as delineated on a plan attached to the licence and comprising an area of 271 ha. The term of the licence was 1 April 1999 to 31 March 2000. The conditions attached to it were similar to those of the first licence. The royalty, however, was fixed at 5% of the FOB price of the essential oil and any other products derived from the timber harvested from the licensed area (condition 2). The other relevant conditions of the first licence, summarised above, were repeated in the second licence.

17 The third licence was issued on 29 March 2000 for a period from 1 April 2000 to 31 March 2001. It covered the "Part Portions 2820 and 2821 Hundred of Bagot as delineated on the attached map comprising an area of 271.7 Hectares or thereabouts ...". The royalty payments and the relevant conditions were otherwise similar to those specified for the second licence.

18 The fourth licence was issued on 15 May 2001 for a period from 1 April 2001 to 30 June 2001. It covered part portion 2821 Hundred of Bagot as delineated on an additional plan. The part of portion 2821 covered by the licence appeared identical to that area of portion 2821 covered by the third licence. Similar conditions applied as in the case of the second and third licences.

19 The second, third and fourth licences required compliance with approved site management plans. Only those relevant to the third and fourth licences were in evidence. The site management plan for the third licence stated its purpose as "... to ensure that impacts to land within the plantations are minimized and that adjacent land within the catchment is protected through the adoption of appropriate forms of land management". Section 2 dealt with an operational plan. Section 3 set out physical limitations to be identified. These included the retention of a buffer zone to protect water ways and drainage lines. Section 4 provided for rehabilitation of harvested areas and required, inter alia, that stumps would be removed as harvesting progressed and would be chipped and distilled along with other parts of the trees. Section 5 required preparation of a schedule indicating the timing and sequence of events of operations in line with the future requirements for development. Section 6 provided for suspension or restrictions on operations. Section 7 provided for environmental management. There was then a reference to the statutory requirements of the Northern Territory Water Act 1992 and occupational health and safety requirements.
The findings of the primary judge

20 At the hearing Mr and Mrs Collins did not contend that the timber was only capable of one reasonable use. It was therefore unnecessary for his Honour to consider the application of s 117(2)(a). There was evidence from a forester, Peter Brocklehurst with the Department of Natural Resources, Environment and the Arts, about the uses of Callitris Intratropica trees. Mr Brocklehurst described the wood of the trees as having the following characteristics and qualities:
(a) termite resistance
(b) light structural timber.

Mr Brocklehurst said he was aware that such trees had been used and are still being used for the following applications:
(a) poles, fence posts and rails
(b) flooring
(c) light construction
(d) oil extraction
(e) mulch
(f) traditional indigenous uses.

There was also material put before his Honour by Mr Collins which included a proposal to the Northern Territory prepared on his behalf by Mr Peter Cavanagh, a taxation accountant, in June 1995 and entitled "PROPOSAL FOR THE FORESTRY OPERATIONS AT HOWARD SPRINGS PINE PLANTATION". In that submission it was stated:

There are five main avenues of income able to be produced through the pine forest plantation located at Howard Springs, these are:

1/ Milled Timber – milling everything possible even five foot logs.
2/ Woodchip Mulch – using all surplus material eg branches, leaves etc.
3/ Pine Oil Extraction – from the woodchip.

4/ Potting Mix – using either the woodchip and/or sawdust from the milling
5/ Firewood – can be collected from dead tree litter.

At that time it appeared that Mr Collins had purchased his own timber sawmill and was looking for a permanent base to set up the machinery. The submission to government said:

The production of Cypress Pine [a description for trees of the species Callitris Intratropica] for flooring, decking, panelling and the Pinus Caribaea for furniture production, general construction (formwork) and pallets is possible from the milled timber at the plantation, generally the timber is of a high standard and all the current uses for pine wood is suitable for this milled timber.

The submission went on to refer specifically to the two types of pine wood in the Howard Springs forest and said of Callitris Intratropica:

The second and most common type of timber at the plantation is Callitris Intratropica (Tropical Cypress Pine) which has a multitude of uses because of it’s (sic) unique properties. Being of a different nature to the Pinus Caribaea it takes around 12.5 trees to produce a cubic metre of wood and approximately five trees to produce a cubic metre of woodchip.

21 His Honour’s findings included the following:

1. The Northern Territory had reason to believe that ACOC would use bark and wood from the timber in combination for the purpose of producing blue cypress oil. The availability to the Northern Territory of the Collins’ patent was information from which the manner of use of the timber by ACOC could reasonably have been discerned.

2. The use of bark and wood from the timber to produce blue cypress oil does not infringe the patent per se. The patent protects the process of the production of blue cypress oil from the wood and bark of the timber.

3. The grant of the licences to ACOC in their terms and in their context did not amount to the supply of timber to ACOC so as to expose the Northern Territory to liability as a contributory infringer of the patent under s 117(1) of the Act.

4. In November 1995 or thereabouts the Northern Territory decided upon advice that the trees at Howard Springs were not of sufficient quality for their initially intended use for commercial timber and other associated products.

5. There were other commercial uses for the timber at the time that the Northern Territory decided that the trees were not suitable for their initially intended forestry use. There was residual commercial value in the timber including timber processing, oil production, wood chip production and decorative purposes. His Honour observed that Mr Collins had proposed a number of potential uses which he described as "only the tip of the iceberg". His views reflected those of Mr Brocklehurst about the characteristics and uses of the timber.

6. At the time of its invitation for tenders in mid-1997 and prior to the grant of the licences to ACOC the Northern Territory recognised that the major commercial interest was in harvesting the timber for the extraction of essential oil.

7. Up to the point at which the plantation was written off by the Northern Territory the timber, as acknowledged by Mr and Mrs Collins, was a staple commercial product.

8. The decision of the Northern Territory not to maintain the plan to allow further growth of trees on the Howard Springs land for harvesting for timber did not result in the timber from those trees losing its character as a staple commercial product.

On the hearing of the appeal Mr and Mrs Collins contended that their apparent "concession" that the relevant timber was a staple commercial product up to the time the plantation was "written off" by the Northern Territory for commercial forestry production, was wrongly made. No point was taken in respect of that "concession". This appeal can be determined on the assumption that it was not made.

The grounds of appeal

22 The grounds of appeal, as they appeared in a notice of appeal against his Honour’s decision filed on 18 January 2007, were numbered 2 to 4 and were in the following terms:

2. The learned trial judge erred in his interpretation and application of the definition of "supply" as used in Section 117(1) of the Patents Act 1990 ( Cth) ("the Act") by finding that:

(a) there is no positive act of the Territory which, in terms of the definition "supply" in the Act amounted to a "supply".

(b) the grant of licences to ACOC and in terms and in their context did not amount to the supply of Timber to ACOC so as to expose the Territory to a liability as a contributory infringer of the patent under Section 117(1) of the Act.

3. The learned trial judge erred in finding that the product supplied by the Respondent was a staple commercial product.

4. The learned trial judge should have held that:

(a) the timber supplied by the Respondent was not a staple commercial product; or

(b) alternatively if the timber was at any time a staple commercial product, it ceased to be classifiable as a staple commercial product when the timber was not maintained for the purpose of sylviculture. [sic]

The Collins seek declarations that the Northern Territory supplied a product to ACOC the use of which would infringe the patent and that the product is not a staple commercial product.
The notice of contention

23 By its notice of contention, the Northern Territory submitted that the primary judge’s decision should be upheld on the following grounds:

(c) That the "product" said to be supplied, howsoever described, was not a "product" the use of which would infringe the subject patent for the purposes of Section 117 of the Act; and

(d) That the "product" that could be relevantly described as an input into the process of the subject patent was:

(i) the bark and wood of Callitris Intratropica; and/or

(ii) the bark of Callitris Intratropica and the bark and wood of one or more species of the genus Callitris;

whereas what was purportedly "supplied" in the present case was Trees of the species Callitris Intratropica.

Accessorial liability for infringement before contributory infringement

24 Prior to the enactment of the Act there was no liability under Australian law for merely facilitating infringement. The same was true in the United Kingdom before the enactment of the Patents Act 1977 (UK). Suggestions to the contrary were rejected by Jessell MR in Townsend v Haworth LR 12 CD 830, noted in Sykes v Howarth (1879) 12 Ch D 826:

You cannot make out the proposition that any person selling any article, either organic or inorganic, either produced by nature or produced by art, which could in any way be used in the making of a patented article can be sued as an infringer, because he knows that the purchaser intends to make use of it for that purpose.

That authority was followed and applied by the Court of Appeal in Dunlop Pneumatic Tyre Co Ltd v David Moseley & Sons Ltd [1904] 1 Ch 612. See also Adhesive Dry Mounting Co Ltd v Trapp & Co (1910) 27 RPC 341 at 353 and Belegging-en Exploitatiemaatschappij Lavender v Witten Industrial Diamonds Ltd (1979) 5 FSR 59 at 64-66.

25 Despite the absence of statutory provisions relating to contributory or indirect infringement it always was, as it still is, the law that a person is liable as an infringer who aids or induces or procures another to infringe a patent. In Gibson and Campbell v Brand (1841) 1 WPC 631, Tindal CJ said:

... he that causes or procures to be made, may well be said to have made them himself.

To attract that accessorial tortious liability, it is not enough to sell an article knowing that it would be used in a way which would infringe the patent of another: Dow Chemical AG v Spence Bryson & Co Ltd (1982) 8 FSR 397 (CA). What was, and still is, required was conduct of the kind that would characterise a person as a joint tortfeasor at common law. As was said in the 16^th Edition of Tyrell on The Law of Patents (Sweet & Maxwell, 2006) at p 8-40:

Persons may be liable for infringement if their acts are such as would make them joint tortfeasors under the general law.

Liability as a joint tortfeasor has been said to require concerted action with another in the commission of the infringement or a "concerted design": Morton-Norwich Products Inc v Intercen Ltd [1978] RPC 501 at 513 (Graham J). There is other authority for the proposition that inducing or procuring an infringement attracts liability as a joint tortfeasor. Some of the cases seem to use the words "joint tortfeasor" to refer only to the class of persons involved in a common or concerted design to infringe and assign liability to persons inducing or procuring infringement under a wider head of accessorial tortious liability. Whatever the proper nomenclature, mere facilitation of an infringement does not amount to procuration of or involvement in it: Molnlycke v Procter & Gamble (No 4) [1992] RPC 21 at 29 (Dillon LJ).

26 The rejection by the English Courts of the proposition that conduct merely facilitating infringement is a species of infringement, was followed by the High Court in Walker v Alemite Corporation [1933] HCA 39; (1933) 49 CLR 643 at 650 (Rich J), 654 (Starke J, Evatt J agreeing) and 658 (Dixon J, McTiernan J agreeing). Dixon J put it thus (at 658):

... it is settled law that the exclusive property in a combination invention is not infringed upon by the sale of the components ... that selling articles to persons to be used for the purpose of infringing a patent is not an infringement of the patent ... and that sale with a knowledge that the purchaser will use the articles for infringement is not itself an infringement although the vendor gives the purchaser an indemnity: the vendor must have made himself a party to the act of infringement ... Further ... it is not enough that the article sold has no other use than a use in the course of what amounts to infringement. The basis upon which these rules rest is that whatever is not included in the monopoly granted is publici juris and may be freely used as of common right.

27 The accessorial tortfeasor doctrine was applied by the Court. The position was summarised by Professor S Ricketson in his First Edition of The Law of Intellectual Property (Law Book Co, 1984). He said (at p 989) that liability for infringement under the Patents Act 1952 (Cth), would be imposed in the following circumstances:

1. Where the vendor sells all the parts of a patented product together – this will be regarded as the sale of the whole product and therefore an infringement.

2. Inducing a person to commit an infringement of a patent will probably in itself constitute an infringement, eg where materials for use in a patented process are sold with instructions for use in that process.

3. Liability as a joint tortfeasor may be imposed where a person acts pursuant to a common design with another person, even though the first person himself commits no act of infringement, eg because he simply supplies part or is situated outside the jurisdiction.
The position appears to be the same in Canada and New Zealand where there is no statutory provision for contributory or indirect infringement. Attempts to persuade the courts to a judge-made doctrine of contributory infringement have been rejected in Canada: Beloit Canada Ltd v Valmet Oy (1988) 21 CPR (3d) 1 FCA – leave to appeal refused by the Supreme Court (1998) 21 CPR (3d) and see Faurecia Automotive Seating Canada Ltd v Lear Corp Canada (2004) FC 421. In New Zealand see Whangapiarita v Allflex New Zealand Ltd (1995) 5 NZBLC 103,733; Nu-Pulse New Zealand Ltd v Milka-Ware (ANZ) Ltd (High Court, Hamilton CP 8/97 14/10/99 Master Faire). Israel is an example of a jurisdiction in which such a doctrine has developed: see Benyamini A, "Indirect infringement of patents in Israel: judge-made law" in Vaver and Bently (ed) Intellectual Property in the New Millenium (CUP, 2004) p 109 ff.

28 Involvement as an accessorial or joint tortfeasor continues in both the United Kingdom and Australia as a basis for imposing liability notwithstanding the enactment of statutory provisions for contributory infringement in s 60(2) of the Patents Act 1977 (UK) and s 117 of the Act: Caterpillar Inc v John Deere Ltd [1999] FCA 1503; (1999) 48 IPR 1; Murex Diagnostics Australia Pty Ltd v Chiron Corp [1995] FCA 1040; (1995) 30 IPR 277. Its application to the statutory liability for infringement is supported by the requirement enunciated by Dixon J that "the vendor must have made himself a party to the act of infringement". It is no doubt too late in the day to say that this may not require that such participation be labelled as tort. The imposition of liability for infringement on persons who would be regarded at common law as joint tortfeasors arguably flows from the words of the Act imposing direct liability. In any event there is ample and long standing authority for the proposition that one who induces or procures another to infringe a patent and, a fortiori, one who takes part in a concerted design or purpose for the commission of that infringement by another, commits a tort: Ryan v Lum (1989) 14 IPR 513 at 521-522 (Young J) and authorities there cited. The proposition relies upon the general principle enunciated by Jordan CJ in Independent Oil Industries Ltd v Shell Co of Australia Ltd (1937) 37 SR(NSW) 394 at 414:

... as a general rule the doing of any act which violates a legal right is unlawful. If the right is in rem the wrongful violation constitutes a tort. In this case, any person who procures another to violate the right is a joint tort-feasor with him, and the injured party may sue either of them alone or both of them jointly for the tort.

A similar proposition was advanced in Spotless Group Ltd v Proplast Pty Ltd (1987) 10 IPR 668, with which Wilcox J agreed in BEST Australia Ltd v Aquagas Marketing Pty Ltd (1988) 83 ALR 217 where his Honour said:

It seems to me that the principles applicable to joint tortfeasors equally apply to contraventions of those statutory rights which are enforceable by civil remedies.

See also: CCOM Pty Ltd v Jiejing Pty Ltd [1994] FCA 1168; (1994) 51 FCR 260 (Cooper J).

29 In Ramset Fasteners (Aust) Pty Ltd v Advanced Building Systems Pty Ltd (1999)164 ALR 239 the Full Court, following a careful review of the authorities, said (at [41]):

These authorities show that liability for infringement may be established, in some circumstances, against a defendant who has not supplied a whole combination (in the case of a combination patent) or performed the relevant operation (in the case of a method patent). The necessary circumstances have been variously described: the defendant may "have made himself a party to the act of infringement"; or participated in it; or procured it; or persuaded another to infringe; or joined in a common design to do acts which in truth infringe. All these go beyond mere facilitation. They involve the taking of some step designed to produce the infringement, although further action by another or others is also required. Where a vendor sets out to make a profit by the supply of that which is patented, but omitting some link the customer can easily furnish, particularly if the customer is actually told how to furnish it and how to use the product in accordance with the patent, the court may find the vendor has "made himself a party to the [ultimate] act of infringement". He has indeed procured it. So to hold is not in any way to trespass against the established line of authority which, as Dixon J made clear in Walker v Alemite, is based upon the need to confine a monopoly to the precise area in which it operates. That protects the mere vendor of an old product, though selling with knowledge of the purchaser’s intention to infringe a combination patent; but it affords no excuse to the person who sets out to induce customers to do what falls fairly within the area of the monopoly.

30 The application of the joint tortfeasor or accessorial tortious liability doctrine to the statutory liability for infringement of a patent is referred to as background to the enactment of s 117 and for a better understanding of the mischief to which it was directed. Section 117 necessarily travels beyond the range of tortious accessorial liability for infringement.
Contributory infringement in the USA – the judge made law

31 In contrast to English doctrine, contributory infringement of a patent was regarded as an actionable wrong in the United States from the 19^th century. It dates back to Wallace v Holmes 29 F Cas 74 (CC Conn 1871). A combination patent for a burner for an oil lamp was held infringed by the sale of the burner without a chimney, a component which could readily be obtained. The rationale for the doctrine in the United States was explained by Blackmun J delivering the opinion of the majority of the Supreme Court in Dawson Chemical Co v Rohm & Haas Co [1980] USSC 171; 448 US 176 (1980) (at 188):

It exists to protect patent rights from subversion by those who, without directly infringing the patent themselves, engage in acts designed to facilitate infringement by others. This protection is of particular importance in situations, like the oil lamp case itself, where enforcement against direct infringers would be difficult, and where the technicalities of patent law make it relatively easy to profit from another’s invention without risking a charge of direct infringement.

32 The scope of the doctrine as it existed in the first half of the 20^th century was described in a 1938 Note in the Harvard Law Review:

The standard doctrine is that one who knowingly advises or induces another to infringe, eg, by furnishing him with materials with the intent that they be used in the infringement, is liable as a contributory infringer; and further, that where the materials are specially adapted for the infringing use and are practically suitable for no other use, such intent may be inferred.

The Scope of the Patent Monopoly: Control of Supplies and Accessories and Restrictions on Use (1938-1939) 52 Harv L Rev p 309

As to the notion of staple commercial products it was said in the same Note (pp 309-310):

Although the doctrine of contributory infringement may not be applicable at all to the sale of certain common articles of merchandise, it has not been regarded in the past as limited to articles peculiarly adapted to the patented process, since relief has been granted where the articles furnished were fairly standard products.

This was said to be on the theory that commerce in such articles should not be impeded by holding the seller liable, even though the seller’s attention was called to the buyer’s direct infringement. Debate in the United States about the scope of the doctrine was informed by concerns about its implications for competition. It was limited by concern about misuse of patent rights. It was put thus in Dawson Chemical Co [1980] USSC 171; 448 US 176 (1980) (at 189):

The difficulty that the doctrine has encountered stems not so much from rejection of its core concept as from a desire to delimit its outer contours. In time, concern for potential anticompetitive tendencies inherent in actions for contributory infringement led to retrenchment on the doctrine.

33 Many of the cases in the United States arose in the context of tying contracts where a patentee sold patented articles on condition that the purchaser would buy other materials exclusively from the patentee or its licensee. In Motion Picture Patents Co v Universal Film Manufacturing Co [1917] USSC 75; 243 US 502 (1917) the Court held that a patentee’s rights in a patent for a film projector did not support a requirement that the purchaser use only its unpatented film. Carbice Corporation of America v American Patents Development Corporation 283 US 27 (1931) involved a patent for a refrigerating transportation package. The package used dry ice. The patentee sold dry ice upon condition that it only be used in its patented packages. It sued Carbice Corporation for contributory infringement because Carbice sold dry ice in the knowledge that it was to be used in the patented transportation packages. In ruling against liability for contributory infringement, Brandeis J on behalf of the Supreme Court said (at 33-34):

Infringement, whether direct or contributory, is essentially a tort, and implies invasion of some right of the patentee ... The Dry Ice Corporation has no right to be free from competition in the sale of solid carbon dioxide. Control over the supply of such unpatented material is beyond the scope of the patentee’s monopoly; and this limitation, inherent in the patent grant, is not dependent upon the peculiar function or character of the unpatented material or on the way in which it is used. Relief is denied because the Dry Ice Corporation is attempting, without sanction of law, to employ the patent to secure a limited monopoly of unpatented material used in applying the invention.

34 In Leitch Manufacturing v Barber Co [1938] USSC 5; 302 US 458 (1938) the relevant patent protected a process for using a thin film of bituminous asphalt emulsion to prevent freshly laid cement roads from prematurely drying. No tying contract was involved. The patentee sued a seller of asphalt emulsion which was intended for use in the patented process. The Supreme Court held that Carbice did not depend upon tying contracts and was applicable to all patents including process patents.

35 The doctrine of contributory infringement was called into question in two decisions of the Supreme Court in Mercoid Corporation v Mid-Continent Investment Co [1944] USSC 28; 320 US 661 (1944) and [1944] USSC 29; 320 US 680 (1944). They concerned a combination patent for a domestic heater. One of the components of the combination was a combustion stoker switch which was not itself patented. Royalties payable under a licence agreement to manufacture and sell the heater were based upon sales of the combustion stoker switch. Mercoid made such switches. There was no use for them other than in the combination patent. The patentee sued for contributory infringement. The Supreme Court held that misuse of the patent to protect an unpatented element from competition was a defence available to a contributory infringer. The Court assumed for the purposes of its case, that Mercoid was a contributory infringer and that the patentee could have enjoined the infringement but for its misuse of the patent for the purpose of monopolising unpatented material. Douglas J said (at 669):

The result of this decision, together with those which have preceded it, is to limit substantially the doctrine of contributory infringement. What residuum may be left we need not stop to consider. It is sufficient to say that in whatever posture the issue may be tendered courts of equity will withhold relief where the patentee and those claiming under him are using the patent privilege contrary to the public interest.

This dictum was said to have "[cast] doubt on the vitality of the whole doctrine of contributory infringement": Contributory Infringement and Misuse - The Effect of Section 271 of the Patent Act of 1952, 66 Harv L Rev (1952-1953) at 913. The decision left uncertainty in the lower courts. Some took the view that the doctrine of contributory infringement had been abolished. In Dawson [1980] USSC 171; 448 US 176 (1980) Blackmun J described the Mercoid decisions as dealing a serious blow to the view that "control of nonstaple items capable only of infringing use might not bar patent protection against contributory infringement" (at 195).

36 The history of the United States jurisprudence prior to the enactment of SS 271 of the Patents Act 1952 (Title 35 Ch 38) is a history of the ebb and flow between contributory infringement and patent misuse. The Court in Dawson [1980] USSC 171; 448 US 176 (1980) recognised their "antithetical underpinnings". The capacity to suppress competition in an unpatented article was "an inevitable concomitant of the right to enjoin another from contributory infringement". (at 197):
Contributory infringement in the USA – s 271 US Code Title 35 Chapter 27

37 Section 271 was enacted to overcome the uncertainty that followed Mercoid. At hearings conducted by the House Judiciary Committee, one of its members described the purpose of the section as being to "... remove the question of confusion as to whether contributory infringement existed at all, and stating positive law that there is such a thing as contributory infringement, or at least it be in the sense of Congress by enactment of this law that if you have in the Mercoid case done away with contributory infringement, then we reinstate it as a matter of substantive law of the United States ...". Judge Rich, a witness before the committee who was one of the principal authors of SS 271 and much quoted in Dawson [1980] USSC 171; 448 US 176 (1980), described that as "a very excellent statement". See: op cit 66 Harv L Rev 909 at 914. A history of the congressional process leading to the enactment of s 271 and its amendments prior to 1994 appeared in Arnold T and Riley L, Contributory Infringement and Patent Misuse: The Enactment of SS 271 and its Subsequent Amendments (1994) 76 J Pat & Trademark Off Soc’y 357. It commenced with a quotation from Judge Rich which may elicit a sympathetic reaction from those called on to advise in this area of the law:

They call patent law the metaphysics of law, and I would say that this contributory infringement business is the metaphysics of patent law.

38 Section 271 of the United States Code Title 35 Chapter 28, as originally enacted in 1952, provided:

(a) Except as otherwise provided in this title, whoever without authority makes, uses or sells any patented invention, within the United States during the term of the patent therefor, infringes the patent.

(b) Whoever actively induces infringement of a patent shall be liable as an infringer.

(c) Whoever sells a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practising a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial non-infringing use, shall be liable as a contributory infringer.

Paragraph (d) excluded certain conduct from the scope of any patent misuse doctrine. It is not material for present purposes. Paragraphs (e) to (i) were added by later amendments. Paragraphs (a) to (c) were also amended. The amendments commenced in 1984.

39 In Dawson [1980] USSC 171; 448 US 176 (1980) the Court characterised the section as a "codification of contributory infringement and patent misuse" compromising between those two doctrines to permit patentees to exercise control over non-staple articles used in their invention. (at 200). The exclusion from s 271(c) of "staple article or commodity of commerce suitable for substantial non-infringing use" was explained in academic commentary of the time in the Harvard Law Review:

This restriction to non-staple components signifies restoration of the patentee’s power over those commodities he was thought to control prior to Mercoid. Those responsible for introducing the bill excluded staple parts probably because they feared that such an enlargement might jeopardize congressional approval of the bill. Indeed during the hearings several members of the House Committee evinced concern lest a burden be placed upon the vendors of ordinary commercial products to decide whether or not the purchaser would use the article in an infringing manner. Although there would seem to be little difference between a person who sells a staple article knowing that it is going to be used in an infringing device, and one who sells a component having substantially no other use than in the combination, Congress evidently believed that the interest in the free flow of commercial goods justified a flat exclusion of staple articles.
66 Harv L Rev 909 at 915

The Court in Dawson [1980] USSC 171; 448 US 176 (1980) described the operation of s 271(c) (at 200):

Section 271(c) identifies the basic dividing line between contributory infringement and patent misuse. It adopts a restrictive definition of contributory infringement that distinguishes between staple and nonstaple articles of commerce. It also defines the class of nonstaple items narrowly. In essence, this provision places materials like the dry ice of the Carbice case outside the scope of the contributory infringement doctrine. As a result, it is no longer necessary to resort to the doctrine of patent misuse in order to deny patentees control over staple goods used in their inventions.

Section 271 still allowed a supplier of staple parts to be liable under para (b) on a principle analogous to the joint tortfeasor doctrine applicable in England and Australia.

40 The courts in the United States have also long had a judge made doctrine of contributory infringement in copyright law: eg Kalen Co v Harper Bros [1911] USSC 132; 222 US 55 (1911). That doctrine was considered by the Supreme Court in Sony Corporation of America v Universal City Studios, Inc [1984] USSC 14; 464 US 417 (1984). In its opinion, which was delivered by Stevens J, the Court described the concept of contributory infringement as "merely a species of the broader problem of identifying the circumstances in which it is just to hold one individual accountable for the actions of another" (at 435). The question before the Court was whether Sony’s sale of home video tape recorders (VTR) to the public rendered it liable for contributory infringement of copyright in films recorded using the VTRs. The Supreme Court held Sony not liable. In so doing it considered contributory infringement in patent law. Where the sale of an article of commerce used by the purchaser to infringe a patent involved contributory infringement, the public interest was necessarily implicated. A finding of contributory infringement was the functional equivalent of finding the article to lie within the patentee’s monopoly. The Court continued (at 441):

For that reason, in contributory infringement cases arising under the patent laws the Court has always recognized the critical importance of not allowing the patentee to extend his monopoly beyond the limits of his specific grant. These cases deny the patentee any right to control the distribution of unpatented articles unless they are "unsuited for any commercial noninfringing use." Dawson Chemical Co v Rohm & Hass Co [1980] USSC 171; 448 US 176, 198 (1980). Unless a commodity "has no use except through practice of the patented method", id, at 199, the patentee has no right to claim that its distribution constitutes contributory infringement.

And further, quoting Henry v AB Dick Co, [1912] USSC 80; 224 US 1, 48 (1912) (at 441):

[A] sale of an article which though adapted to an infringing use is also adapted to other and lawful uses, is not enough to make the seller a contributory infringer.

41 The Court acknowledged the substantial differences between patent and copyright laws but found common ground for the contributory infringement doctrine in both in the recognition that protection of a monopoly may require the courts to look beyond the actual duplication of a device or publication to the products or activities that make duplication possible. Relevantly for present purposes, the Court said (at 442):

The staple article of commerce doctrine must strike a balance between a copyright holder’s legitimate demand for effective – not merely symbolic – protection of the statutory monopoly, and the rights of others freely to engage in substantially unrelated areas of commerce. Accordingly, the sale of copying equipment, like the sale of other articles of commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses.

A substantial non-infringing use of the VTRs in that case was private, non-commercial, time shifting in the home.

42 Characterisation of file sharing software used in peer to peer networks as falling within the staple article of commerce doctrine was rejected as an answer to a claim for contributory infringement of copyright in Metro-Goldwyn-Mayer Studios Inc v Grokster Ltd 545 US 913 (2005). The Supreme Court referred back to its Sony decision and said, in the opinion of Souter J, on behalf of the Court:

This analysis reflected patent law’s traditional staple article of commerce doctrine, now codified, that distribution of a component of a patented device will not violate the patent if it is suitable for use in other ways ... The doctrine was devised to identify instances in which it may be presumed from distribution of an article in commerce that the distributor intended the article to be used to infringe another’s patent and so may justly be held liable for that infringement.

The Court then quoted the dictum which has other resonances in Australian jurisprudence:

One who makes and sells articles which are only adapted to be used in a patented combination will be presumed to intend the natural consequences of his acts; he will be presumed to intend that they shall be used in the combination of the patent - citing New York Scaffolding Co v Whitney 224 F 452, 459 (CA8 1915).

The Court summed up the rationale of the staple article of commerce doctrine thus:

In sum, where an article is "good for nothing else" but infringement ... there is no legitimate public interest in its unlicensed availability, and there is no injustice in presuming or imputing an intent to infringe ... Conversely, the doctrine absolves the equivocal conduct of selling an item with substantial lawful as well as unlawful uses, and limits liability to instances of more acute fault than the mere understanding that some of one’s products will be misused. It leaves breathing room for innovation and a vigorous commerce.

43 Grokster was a distributor of free software enabling computer users to share files through peer to peer networks. The software had lawful applications but was used to share copyrighted music and video files without authorisation. Grokster did not fall within the copyright safe harbour which the Sony case had modelled on the staple article doctrine of patent law. That was because, on the evidence, it was found to have promoted the use of its software to infringe copyright.
Contributory infringement in the United Kingdom and Europe

44 The American jurisprudence and its codification in SS 271 of the Patents Act 1952 (US) appears to be the source of the staple commercial products limitation found in the statute law of the United Kingdom and Australia, most member States of the European Community and a number of other countries. The limitation reflects a legislative concern that creation of liability for contributory infringement should not result in unwarranted extension of the patentee’s monopoly. That has implications for the approach to the construction of s 117 of the Act both as to the extent of the liability it creates and the boundaries of that liability. Before considering s 117, it is helpful to look briefly to the legislative history and background of the like provision in the United Kingdom and its relationship to the Community Patent Convention of the European Community which along with like provisions in other countries inspired the enactment of s 117.

45 The Patents Act 1952 (UK) contained no definition of infringement nor was there any provision in the Act for indirect or contributory infringement. In 1970 the Banks Committee reported on the British patent system: Report of the Committee to Examine the Patent System and Patent Law Cmnd 4407 (1970). The committee recommended that a definition of infringement should be contained in the Act and also made a recommendation in the following terms (at p 77):

The sale of a known substance with clear instructions for its use in a manner which is patented, and the sale of the components of a patented apparatus with the intention that the components be assembled by others in the United Kingdom to form the patented apparatus, should be actionable as infringement.

46 The committee noted the limitations of the existing law and said that the rights of the patentee should be strengthened with power to restrain cases of contributory infringement. It was "most difficult" to frame a definition of contributory infringement which would extend beyond the cases mentioned in its recommendation. It considered the United States law and also the provisions of the 1962 Draft Convention relating to a European Patent Law. Article 20(2) of that Draft Convention provided:

The proprietor of the patent may also invoke his exclusive right against any other person who supplies or offers to supply an authorised person with the means of carrying out a patented process relating to an essential element of the invention:

(a) when these means are selected solely for carrying out such process; or

(b) when the other person knows or ought to have known that those means are suitable and intended for carrying out the process.

The committee regarded the United States provision as "broader than we consider desirable" and noted that the European draft provision appeared to be limited to process patents. The Report made no mention of a staple commercial product limitation. The new Patents Act was not introduced until 7 years later. It followed a Department of Trade White Paper published in 1975 entitled "Patent Law Reform". That indicated a government intention to go further than the Banks Committee so that a patentee could take action if an essential element of the patent were supplied with the intention that it should be used to carry out the patented invention. The White Paper itself made no reference to staple commercial products.

47 Events in Europe also affected the reform process. A Community Patent Convention (CPC) was signed by Member States of the European Community in 1975. It provided for a unitary patent to be granted by a central European patent authority. The Convention was not ratified by all Member States and therefore never entered into force. However, by a Declaration on the Adjustment of National Patent Law annexed to the CPC and effective upon its signature (independent of ratification), Community Member States were required to align their laws so far as practicable with corresponding provisions of the CPC, the European Patent Convention and the Patent Cooperation Treaty.

48 Article 26 of the CPC provided:

1. A Community patent shall also confer on its proprietor the right to prevent all third parties not having his consent from supplying or offering to supply within the territories of the Contracting States a person, other than a party entitled to exploit the patented invention, with means, relating to an essential element of that invention, for putting it into effect therein, when the third party knows, or it is obvious in the circumstances, that these means are suitable, and intended for putting that invention into effect.

2. Paragraph 1 shall not apply when the means are staple commercial products except when the third party induces the person supplied to commit acts prohibited by Article 25.

The limitation in Art 26(2) was no doubt inspired bySS 271(c) of the Patents Act 1952 (US). Like that provision it has been said to reflect "... a compromise which takes into consideration the rights of the patentee on the one hand and the public interest in free trade of staples on the other": Benyamini A, Patent infringement in the European Community, IIC Studies, VCH Publishers Inc (1993) at 220-221.

49 Section 130(7) of the Patents Act 1977 (UK) declared s 60, inter alia, among other sections, to be "... so framed as to have, as nearly as practicable, the same effects in the United Kingdom as the corresponding provisions of the European Patent Convention, the Community Patent Convention and the Patent Cooperation Treaty have in the territories to which those Conventions apply".

50 Section 60(2) of the Patents Act 1977 treats as infringement the supply of:

... the means, relating to an essential element of the invention, for putting the invention into effect when he knows, or it is obvious to a reasonable person in the circumstances that those means are suitable for putting, and are intended to put, the invention into effect in the United Kingdom...

where that supply is without the consent or authority of the proprietor of the patent. The staple commercial product limitation appears in s 60(3):

Subsection (2) above shall not apply to the supply or offer of a staple commercial product unless the supply or offer is made for the purpose of inducing the person supplied or, as the case may be, the person to whom the offer is made to do an act which constitutes an infringement of the patent by virtue of subsection (1) above.

A textbook published at about the time of the enactment of the Patents Act 1977 reproduced its terms and offered brief commentary on the Act. It equated the term "staple commercial product" in s 60(3) with the term "commonly used products": Brett H, The United Kingdom’s Patent Act 1977, (ESC Publishing, 1978) at 47.

51 The term "staple commercial product" has not been the subject of any substantial judicial exegesis in the United Kingdom. In an unreported decision of the Patents County Court in 1993, Pavel v Sony [1993] 20 FSR 177 it was construed as "a product of the kind needed every day and generally obtainable". However in The Modern Law of Patents, Fysh, Roughton, Cook and Spence (eds) (LexisNexis, Butterworths, 2005) at 2.11 the following comment was offered on that decision and the constructional question:

The difficulty which section 60(3) PA 1977 intends to deal with is situations where putative infringers purchase products off the shelf or from pre-prepared catalogues. Suppliers in such circumstances should be not impugned merely for operating in the usual channels of trade in a usual manner. The problem is that if Parliament had intended the exception to cover only this situation, then it would have said so – it did not. There was no corresponding question under the Patents Act 1949, where such indirect infringers were not liable at all, although, because of the way that the 1949 Act worked, primary infringement was not defined either. Although this question has never been the subject of scrutiny by the courts, it is submitted that whatever the wording of section 60(3) PA 1977, the intention is to stop material particularly adapted to the use of an invention being made available to a putative infringer, but that material which has and, importantly, had, a general purpose of more than de minimis utility, falls within the exception contained in section 60(3) PA 1977.

The latter observation seems, with respect, to accord with the language of s 60(3) bearing in mind that it is the supply of staple commercial products, absent a purpose of inducing infringement, that is protected.

52 The CPC did not come into operation because it was never ratified by any of the member States. Most of them however have incorporated into their national laws provisions for contributory infringement modelled on Art 26: eg Intellectual Property Code (France) Art L-613-4 and the Patent Act (Germany) s 10. Both adopted the staple commercial article or product limitation.
Contributory infringement enters Australian patent law

53 On 29 April 1984 Australia’s Industrial Property Advisory Committee (IPAC) produced a report entitled "Patents, Innovation and Competition in Australia". It considered the question of contributory infringement under the heading "ENFORCEMENT OF PATENTS". It identified as the most common example of what it called indirect or secondary or contributory infringement the case in which (at 67):

... goods, materials or parts are supplied to a consumer with the intention that they be used, consumed or assembled in a way which constitutes an infringement of a patent.

Its recommendation, numbered 33, was in the following terms:

that in general the supply of goods whose only use would infringe a patent, or which are accompanied by a positive inducement for the ultimate consumer to perform actions which would innocently or knowingly infringe a patent, should itself be an infringement of the patent.

The mischief said to be addressed by the recommendation was the serious difficulty of enforcing a patent infringed by consumers supplied by an unauthorised third party with the means to infringe. IPAC took the view that it was unreasonable and wasteful for a patentee to have to sue all of the direct infringers when the supplier was in a real sense far more responsible for the commission of the infringing acts. The mischief addressed in the Report was a long way from the present fact situation in which there was only one recipient of the materials allegedly supplied.

54 IPAC qualified its recommendation by excluding the supply of "staple commodities" from the proposed prohibition of contributory infringement. It said (at 67):

It would be an unwarranted interference with commercial activities if a patentee were to be able to prevent another person from selling a staple commodity with a wide variety of possible uses simply on the grounds that it might be used for an infringing purpose.

It proposed that no action should be allowed against the supplier of a staple product absent a positive inducement by that supplier to the recipient to perform acts which would infringe the patent.

55 The discussion in the IPAC Report, relevant to "staple commercial product" was relatively brief. It was, however, informed by a comprehensive expert study commissioned by Monash University Law School. In a paper prepared by Ms Ann Dufty, which comprised Vol 1 of the Study, there was an extensive discussion of "indirect infringement". The discussion gave considerable attention to the United States jurisprudence. The author recommended a new section defining infringement, including indirect infringement, with a distinction between circumstances attaching liability for the supply of staple on the one hand and non-staple goods or goods which have no substantial non-infringing use, on the other. The proposed classifications of staple and non-staple goods were clearly inspired by the United States jurisprudence.

56 The IPAC Report and the government response to it were tabled together in the House of Representatives on 28 November 1986. The government response accepted Recommendation 33 and stated:

The introduction of provisions to deal with contributory infringement will remove an area of uncertainty under Australian patent law and harmonise it with the laws of Australia’s major trading partners.

Government Response to the Report of the Industrial Property Advisory Committee, 18 December 1986, Official Journal of Patents, Trade Marks and Design Vol 56 p 1416 at 1477.

57 On 1 June 1989 the Patents Bill 1989 was introduced into the House by the Minister for Science, Customs and Small Business. The Bill was described in his Second Reading Speech as "a complete redraft of the Patents Act 1952". It was said to implement "a number of policy changes flowing from an expert report reviewing the Australian patent system from an economic perspective". The expert report was that of IPAC. In the event the 1989 Bill lapsed when parliament was prorogued for the Federal election. It was reintroduced on 29 May 1990 with some changes made in response to submissions received in the interim.

58 The Explanatory Memorandum for the Patents Bill 1990 stated that the intention of s 117 was "... to implement the Government’s response to recommendation 33 of the Industrial Property Advisory Committee relating to indirect or contributory infringement...": Explanatory Memorandum par 170. It stated (at [171]):

The clause will result in the supplier of a product being liable for infringement, where use by the person to whom the product is supplied would be an infringement, if the use is:

- the only reasonable use of the product, having regard to its nature or design;
- any use of a non-staple commercial product to which the supplier had reason to believe that the receiver would put it; or
- use in accordance with any instructions, inducement or advertisement given or published by the supplier.

The construction of s 117

59 In the construction of statutes the Court begins with the ordinary sense of the words used. Where constructional choices are made they will be made in accordance with the context in which the word or words to be construed appear and the purpose of the legislation. In ascertaining legislative purpose it is necessary to bear in mind, particularly but not only in the field of intellectual property law, the cautionary observation in the joint majority judgment in Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58; (2005) 224 CLR 193 at [34]; [2005] HCA 58; 221 ALR 448 at [34] that in some cases, to fix upon one purpose and then bend the terms of the definition to that end risks "picking a winner" when the legislature has stayed its hand from doing so. The Court was there concerned with "technological protection measures" under the Copyright Act 1968 (Cth) where the extrinsic materials were replete with "shifting and contradictory positions taken by a range of interest holders in the legislative outcomes". It seemed "that the legislative purpose was to express an inarticulate (or at least not publicly disclosed) compromise".

60 In this case the legislative purpose in enacting s 117 was to give effect to the policy behind Recommendation 33 of the IPAC Report and the desire, set out in the government’s response to that Report, to harmonise the laws of Australia with those of its major trading partners. Although not a compromise of the kind identified by the High Court in Stevens there is a tension recognised in s 117 between the rights of patentees and the public interest in not extending those rights to the detriment of legitimate commercial activity. That tension is antithetical to a narrow technical view of either the protection afforded to patentees or the limitations on their rights defined by reference to the supply of staple commercial products.

61 Section 117(1) extends the definition of infringement of a patent to cover the supply of a product by one person to another where the use of that product by "a person" would infringe the patent. It is the act of supply that is the infringement. Infringement is complete upon completion of that act. The section does not require that the product supplied actually be put to an infringing use. The class of products to which the section applies is defined by the attribute that "the use of [the] product by a person would infringe a patent". The range of uses covered by the term "use of a product by a person" is defined in s 117(2).

62 Section 117(2)(a) defines one class of such uses by reference to the case in which a product is capable of only one reasonable use having regard to its nature or design. Section 117(1) read with s 117(2)(a) extends the definition of infringement to the supply of a product "capable of only one reasonable use" which "would infringe a patent". That is to say, when a product is capable of only one reasonable use, having regard to its nature or design, and that use would infringe a patent, the unauthorised supply of that product to a person is an infringement of the patent. Supply of a single use product within the meaning of s 117(2)(a) is infringing only if that use is infringing. If a product is capable of at least one reasonable non-infringing use then it is not caught by s 117(2)(a). The term "reasonable" would appear to exclude commercially irrelevant or de minimis uses. This is consistent with US jurisprudence which indicates that suggested non-infringing uses "... must not be far fetched, illusory, impractical or merely experimental": Chisum on patents: a treatise on the law of patentability, validity, and infringement 17.03 [3]. The question whether the product was a staple commercial product would not arise. The policy of s 117(1) read with s 117(2)(a) is akin to that identified by the US Supreme Court in Grokster in respect of articles "good for nothing else ... but infringement" where there " is no injustice in presuming or implying an intent to infringe". Section 117(2)(a) covers what might be called a species of per se contributory infringement.

63 Section 117(1) read with s 117(2)(b) deals with a case in which the person supplying a product to another person had reason to believe that the person supplied would put the product to an infringing use. Where the product is a non-staple commercial product then its supply in that circumstance is an infringement.

64 The words "reason to believe" in s 117(2)(b) have long standing statutory antecedents. They and similar formulae frequently condition the exercise of statutory powers and require at least, an objective basis for the relevant belief and, according to context, require actual belief: WA Pines Pty Ltd v Bannerman [1980] FCA 79; (1980) 30 ALR 559 at 571 and authorities there cited. On the other hand the formula may be taken, according to its statutory context, to convey a requirement for an objective basis for belief without the necessity of actual belief: eg George v Rockett [1990] HCA 26; (1990) 170 CLR 104 at 112.

65 Where the words "reason to believe" condition a power they are used to ensure that the exercise of the power is justified by reference to objective facts and is not to be exercised simply upon unsupported belief. The same term in s 117(2)(b) defines a necessary condition of liability for contributory infringement in relation to the supply of non-staple commercial products. It could be construed as purely objective in the sense that there were factual matters known to the supplier which would lead a reasonable person to believe that the product would be put to an infringing use. An alternative construction would additionally require the supplier to actually believe that the person supplied would put the product to such a use. The analogous provision in SS 271(c) of the Patents Act 1952 (US) is satisfied by actual knowledge without requiring reasonable grounds for the knowledge. Section 60(2) of the Patents Act 1977 (UK) would also be satisfied by actual knowledge without reasonable grounds. But it provides an alternative basis for liability, namely that "... it is obvious to a reasonable person in the circumstances that those means are suitable for putting, and are intended to put, the invention into effect in the United Kingdom".

66 To construe s 117(2)(b) as requiring actual knowledge supported by reasonable grounds would render the scope of liability for contributory infringement under Australian law narrower than that under US or UK law. Unlike those jurisdictions, it would require both subjective belief and the objective basis for it to be proven. The better construction, consistent with the harmonisation purpose of the legislation, would appear to be objective. In the present case his Honour’s finding as to the Northern Territory’s reason to believe that ACOC would use the timber from the trees for the purpose of producing cypress oil appears to have been supported by reference to purely objective criteria. His finding in that respect is not in issue in this appeal. The preceding observations about the proper construction of the "reason to believe" requirement are therefore strictly obiter.

67 The first constructional point directly relevant to the appeal is of the term "staple commercial product". There is virtually no judicial exegesis on this question in Australia. In Theta Developments Pty Ltd v Leonardis (2002) 59 IPR 368 the Full Court held that spacers used in building foundation form work were staple commercial products but did so without exposition apart from a reference to the fact that they had more than one use. In Hexal Australia Pty Ltd v Roche Therapeutics Inc (2005) 66 IPR 325, Stone J referred to the dearth of authority on the topic in Australia. Her Honour was concerned with an interlocutory application which she properly viewed as not an appropriate occasion on which to decide that question of law. As appears below, the construction of this term is not straightforward.

68 Comparison of s 117(2)(a) and (b) indicates that the class of products described as "not a staple commercial product" is wider than the class described as "product capable of only one reasonable use". For the purposes of s 117(2)(b) a staple commercial product is necessarily a subset of the class of products which have more than one reasonable use. How that subset is defined depends upon the meaning to be given to the words "staple commercial product". The US exclusion of "staple articles or commodities of commerce suitable for substantial non-infringing use" in its s 271(c) raises the same issue. On the face of it, s 271(c) requires that an excluded product be "a staple article or commodity of commerce" and "suitable for substantial non-infringing use". The element of commerciality was emphasised in Sony which spoke of contributory infringement cases under patent law as denying the patentee " ... any right to control the distribution of unpatented articles unless they are "unsuited for any commercial non-infringing use"". (Emphasis added)

69 The US jurisprudence is an important background to the enactment of s 117. It clearly inspired the adoption of the staple commercial product concept. Nevertheless it does not govern the construction of the section. That begins as always with the ordinary meaning of the words construed according to context and purpose. The relevant ordinary meanings of "staple", when used in relation to commodities, are set out in the Shorter Oxford English Dictionary thus. For the noun, used elliptically, it is:

A staple commodity, the principal or an important item of diet, production, trade, etc; a major component or element; a raw material.

And as an adjective:

(of a commodity etc) foremost among the products exported, manufactured, etc by a country or place, that is a main component (most) important, leading, principal; ...

70 The excluded product must be of a kind that is "commercial", that is to say a subject of commercial activity such as buying, selling, leasing or hiring. That is not the end of the matter, for a non-staple product could be commercial. The word "staple" brings to the collocation "staple commercial product" the notion of an important or leading or principal item of commerce. In the context in which it appears in s 117(2)(b) that element is satisfied by requiring that the product be a commonly available commercial product. The staple commercial product excluded from the scope of s 117(2)(b) therefore will be a product of the kind commonly available in trade or commerce and having more than one reasonable use. That construction leaves open the question of the definition, for the purposes of characterisation, of the product class to which the impugned product belongs. To take the case of 3 cm nails as an example. The question might arise, in connection with the supply of such nails, whether they would constitute a staple commercial product as part of the class of nails or as part of the class of 3 cm nails. If 3 cm nails were not much in demand and were hard to come by there might be an argument that they were not staple commercial products. Nails generally however would constitute a staple commercial product. Too narrow an approach to the definition of product classes is likely to engender uncertainty in legitimate commercial markets about the scope of the patentee’s protection. On the other hand too wide an approach could deprive the patentee of protection well within the language and policy of the statute. As with so many areas of legal taxonomy the boundaries to be drawn in product class definition will involve matters of evaluative judgment having regard to the legislative purpose.

71 The second constructional question raised by this appeal is the range of conduct covered by the collocation "the supply of that product" in s 117(1). The most important word in that collocation is "supply" but it must not be taken out of its context. Nor must its purpose be forgotten, which is to define a field of liability for infringement extending beyond those who do the acts comprising the infringement and those who participate in those acts in the sense explained in Walker v Alemite [1933] HCA 39; 49 CLR 643.

72 The definition of "supply" in the Act is inclusive and is therefore not limited to supply by way of sale, exchange, leasing, hire or hire-purchase. It does not in terms require any consideration to be paid for the thing supplied. It is necessary therefore to consider its ordinary meaning. There are a number of shades of meaning in the Shorter Oxford English Dictionary definition. Directly relevant in the present case is:

To furnish, provide, afford (something needed, desired or wanted).

73 The essence of supply is passing something from one who has it to one who wants it: West Surrey Water Co v Guardians of Chertsey Union [1894] 3 Ch 513. Importantly it does not require a physical act of delivery by the supplier. For example, the word was found to be wide enough to cover a water board’s permission to householders to connect domestic premises to a main conveying treated spring water to free stand pipes in a village. In South Devon Water Board v Gibson [1955] 2 QB 448 the Court of Appeal held that the water board in those circumstances was supplying water to the householders within the meaning of s 46 of the Water Act 1945 (UK), and was entitled to charge a water rate. Denning LJ said (at 815):

When the board collect the water into their tank and pass it through their filter and thence into their main, the board thereby reduced the water into their possession; so much so that, if anyone tapped the main without their authority, the board would have sufficient property in the water to maintain larceny at common law: ... Seeing that the board have this special property in the water, it follows that, when they permit a householder to connect up his house with the main, they supply water to his premises and are entitled to charge a water rate for it.
(Emphasis in original.)

74 The ordinary meaning of "supply" is wide enough to encompass a permission to take possession or physical control of something. Whether it is limited to a narrower meaning in a particular statutory context depends upon the construction of the statute. There is nothing in s 117 or its purpose to support an interpretation of "supply" which is narrower, in this respect, than its ordinary meaning. A requirement for physical delivery by the supplier would facilitate easy avoidance of the provision in cases well within its legislative purpose. The fact that the Northern Territory did not physically deliver the timber on the plantation to ACOC would not defeat the contention that it supplied the timber for the purposes of s 117. But that is not the end of the matter in relation to this aspect of the appeal.

75 What is to be supplied must be a "product" if the section is to apply. The relevant ordinary English meaning of "product" is:

A thing produced by an action, operation or natural process; a result, a consequence; spec. that which is produced commercially for sale. Also (agricultural) produce.

The term is wide enough in its ordinary English meaning to encompass discrete articles and bulk goods. It is an essential element that a product is the result of some action, operation or process including a natural process. Trees growing in a plantation could properly be described as "product" in that wide sense.

76 The question then arises whether the grant of a right to take something from the land subject to various terms and conditions is a "supply" of that thing. That depends upon the nature of the right. The nature of a right under a contract for the sale of chattels, to collect the chattels from the vendor’s land, would constitute no more than the contractual right to take delivery of those things. It would fall within the ordinary meaning of the supply of those things for the purposes of s 117(1). And accepting that a growing tree or crop is a product for the purposes of s 117, a bare right to remove that product from the land may constitute its supply. But s 117(1) requires that the infringing supply be of a product. It does not extend to the conveyance of interests in land. To so extend it takes it beyond the ordinary meaning of "supply of a product" and enlarges the area of the patentee’s protection under s 117 into dealings with land. There is nothing in the long history of contributory infringement, which has been reviewed earlier in these reasons, to suggest that such an enlargement was ever contemplated in the judge-made law or its statutory sequelae in the United States and ultimately in this country. In my opinion s 117 does not extend to the grant of rights, whether contractual or statutory, which are in the nature of realty interests.
Whether the grant of the licences constituted a "supply" of the timber

77 The learned primary judge characterised the licences granted to ACOC as "permissive" as ACOC was not obliged to enter upon the Howard Spring lands and log or clear trees and remove timber. His Honour referred to the definition of "supply" in Schedule 1 of the Act and observed that it did not readily accommodate a licence which merely enabled ACOC to go upon the land, harvest the trees and remove the timber. There was no "positive act" of the Northern Territory which fell within the definition. His Honour held therefore that the grant of the licences did not constitute "supply" for the purposes of s 117.

78 The Collins’ written submissions took issue with the way in which his Honour had characterised royalties payable under the licences. The royalty payable under the first licence was $2.50 per harvested tree. In the remaining licences it was 5% of the "FOB value of the oil and other products derived from the timber". His Honour however placed no explicit reliance upon the royalties in coming to his conclusion that the grant of the licences was not a "supply". He did say that the Northern Territory had done nothing which amounted to sale, exchange, lease, hire or hire-purchase of the timber. That was not linked to any view about the nature of the royalties. It seems to have been based upon the proposition that the concept of "supply" meant more than merely granting a permission.

79 The Northern Territory argued that the licences were granted to allow ACOC to do that which otherwise would have been unlawful under s 102 of the Crown Lands Act (NT) and reg 38-49 of the Crown Lands Regulations (NT). The Northern Territory argument focussed upon the statutory scheme for their grant. It submitted that they created private statutory rights akin to those conferred by a profit a prendre. On that basis all that the Northern Territory "supplied" was the right to go upon the Crown lands and remove the timber. There was no substantial difference, it was submitted, between the nature of the rights under the licences and the grazing and fishing rights in issue in R v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; (1982) 158 CLR 327 and Harper v Minister for Sea Fisheries [1989] HCA 47; (1989) 168 CLR 314.

80 Consistently with the construction of s 117 advanced above, if the Northern Territory’s characterisation of the licences is accepted then their grant did not constitute a supply of the timber for the purposes of s 117. The question therefore is whether the grant of the licences is properly characterised as the grant of rights to sever and remove timber in the nature of a realty right.

81 There is some guidance to be derived from cases concerning the contractual grant of rights to take timber from land. Although such cases must be regarded with caution when considering their application to the characterisation of interests granted under statutory licences. When a landowner contracts to authorise another person to cut and remove timber from the land the contract may be characterised in at least two ways. It may be a contract for the sale of the timber as chattels. Alternatively, it may constitute the creation of a profit a prendre or a right analogous to a profit. A profit a prendre amounts to an interest in the timber treated as part of the real property coupled with a right to receive it on payment of consideration for the rights granted. The characterisation has been said to depend upon whether the trees are sold with a view to their immediate removal in which case no interest in land passes. The trees are sold as chattels, at least for the purposes of the Statute of Frauds: Marshall v Green (1875) 1 CPD 35. On the other hand, in Lavery v Pursell (1888) 39 Ch D 508, Chitty J held a contract for the sale of building materials from a house to be taken down and removed within two months was not a contract for the sale of goods but for an interest in the land. As Hill J pointed out in Ashgrove Pty Ltd v Deputy Commissioner of Taxation (1994) 124 ALR 315 at 330, Marshall v Green (1875) 1 CPD 35 was in many ways a simple case and its test not enthusiastically greeted by Chitty J who thought it might be open to further consideration. In Marshall v Green (1875) 1 CPD 35 it was, as Hill J observed, said to be "obvious" that a sale of a small number of trees to be taken away immediately was merely the sale of a particular quantity of timber.

82 The distinction was discussed by Rich J in McCauley v Federal Commissioner of Taxation [1944] HCA 18; (1944) 69 CLR 235 (at 244):

The category into which any particular contract falls depends upon its terms. If its scheme is that the timber-getter acquires the right to all or some specified part of the existing timber, and is to cut and remove it immediately, or within so short a time that no benefit from the land in respect of increased growth of the trees could have been contemplated, the contract is one for the sale of the existing trees as chattels, for which the land serves only as a store-house until they are removed. On the other hand, if the contract creates a right to enter the land whenever the party is disposed to do so, and to cut and take there-from such timber (or such timber of a specified class) as he may from time to time desire to obtain, on payment of a sum determined by the quantity taken, the contract is not one of sale but creates a profit a prendre . ... In the former case, the amounts paid are instalments of a price; in the latter, they are royalties paid in respect of the enjoyment of a profit a prendre.

Rich J was dissenting in that case but the question on which he dissented was characterisation of the relevant payments as royalties for the purposes of s 26(f) of the Income Tax Assessment Act 1936 (Cth). Relevantly for this appeal it may be noted that, where royalties are the only consideration provided as an integral part of an agreement for a profit they are consideration for the grant of the profit itself: Unimin Pty Ltd v Commonwealth (1974) 2 ACTR 71 at 78 (Connor J). That is to say, they are not to be regarded as a purchase price for the product removed from the land pursuant to the profit.

83 It is said, in the present case, that there was an obligation under the licences, to remove all the plantation trees. There is authority to support the proposition that when a contractual licence to cut and remove trees imposes an obligation to do so, the contract is a contract for the sale of goods. But that authority appears to have been influenced, if not derived from, the extended definition of "goods" in the Sale of Goods Acts which included "... things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale": Warren v Nut Farms of Australia Pty Ltd (1981) WAR 134 at 142-143 (Brinsden J). Moreover, as appears from Australian Softwood Forests Pty Ltd v Attorney General (NSW) [1981] HCA 49; (1981) 148 CLR 121, this is not determinative of characterisation of the rights granted as personalty.

84 In Australian Softwood Forests Pty Ltd [1981] HCA 49; 148 CLR 121, which concerned the offer of interests in a pine tree plantation scheme, Mason J considered whether the contractual rights conferred on the "growers" constituted realty interests. He referred to cases in which it was held that a contract for the sale of growing timber under which the purchaser had the right to enter the land, cut and remove the timber immediately was a contract for the sale of goods and said:

This is presumably on the footing that the property in timber passes when it is severed from the land under the contract of sale.

He cited McCauley [1944] HCA 18; 69 CLR 235 and Kursell v Timber Operators and Contractors Ltd [1927] 1 KB 298. The latter was a case in which the Court of Appeal held that a contract for the sale of all timber above a certain height and diameter in a Latvian forest was not a contract for the sale of specific goods in a deliverable state for the purposes of the Sale of Goods Act 1893 (UK). The grower’s contract in Australian Softwood Forests [1981] HCA 49; 148 CLR 121 contained indications that the grower acquired an interest in land even if not a profit a prendre in the strict sense. Provisions relating to the obligations of the plantation manager to care for the trees to maturity suggested that the parties intended the grower to have a continuing interest in the land which would culminate in the severance and removal of the trees. The principal argument the other way was that the grower had an obligation and not a right to cut and remove the trees. As to this Mason J said:

All the instances given in the textbooks and legal dictionaries of profit a prendre are of "rights" to take something off the land of another.

Nevertheless, in the particular case, the existence of an obligation rather than a right to cut and remove the trees at maturity on notice from the manager was not inconsistent with the grower having an interest in land (132-133).

85 The authorities, including Australian Softwood Forests Pty Ltd [1981] HCA 49; 148 CLR 121, were considered in a comprehensive judgment of Legoe J in Vanston v Malura Pty Ltd (1988) 50 SASR 110. The case concerned an oral agreement under which charcoal burners were licensed to enter land and to gather and burn mallee roots. The agreement was held to create "a contractual interest in the land coupled with a licence to enter the land in order to produce a product from the mallee roots on the land". The interest so created "was at least in the nature of a profit a prendre if not a profit a prendre in the strict sense". The grantee was not merely licensed to collect and service the roots but to bring onto the land equipment and assistants to produce charcoal from the wood (128).

86 The Marshall v Green (1875) 1 CPD 35 doctrine was applied in Corporate Affairs Commission v ASC Timber Pty Ltd (1989) NSWLR 577 by Powell J in holding a plantation investment scheme conferred interests on the growers in the nature of a profit a prendre. After citing substantial passages from each of the judgments in Marshall v Green (1875) 1 CPD 35, Powell J drew from them what he called "the true distinction between the grant of a profit a prendre and what is in reality a contract for the sale of standing timber, if need be coupled with a licence to enter, to fell and remove". The distinction was not the existence or non-existence of an obligation on either "vendor" or "purchaser" to fell and remove the trees (at 590):

... rather, so it seems to me, the distinction is to be found to lie in the intention of the parties that the trees may be, or are to be, felled and removed within a reasonably short time – in which case the arrangement is one of sale – or is intended that the trees shall be retained for a considerable period of time while they grow to maturity – in which case the arrangement is one involving the grant of a profit a prendre.

Dicta to like effect are to be found in the judgment of Young J in Permanent Trustee Australia Ltd v Shand (1992) 27 NSWLR 426 at 431-432.

87 In Ashgrove 124 ALR 315 Hill J comprehensively reviewed the authorities and text book writings in relation to the characterisation of contracts for the sale of standing timber. That review led to the conclusion that the extended definition of "goods" in the Sale of Goods Acts of the UK and Australia had not had an impact on the general law wider than its impact for the purposes of that legislation (at 333):

The Sale of Goods Act was only intended to regulate the matters which are dealt with in that legislation such as the passing of title and the like. It does not appear to have been intended to make a significant change in the law of property.

This conclusion had the consequence that a sale of standing timber could be a sale of goods for the purposes of the sale of goods legislation and a grant of a profit a prendre for the purposes of property law. In the case before Hill J the relevant agreements did not require immediate removal of the timber sold. Nevertheless logging began almost immediately and there was no reason to conclude that the purchaser intended to obtain a benefit from the land itself, rather than to acquire the timber "warehoused" on the land. Each of the agreements in that case was treated by Hill J as an agreement for the sale of goods to which the right to enter and sever the timber was ancillary. It was not an agreement for the sale or creation of an interest in land (at 325). The basic test applied was that in Marshall v Green (1875) 1 CPD 35.

88 The considerations relevant to the characterisation of contractual rights have some bearing on the characterisation of licences granted in the exercise of statutory power. A consideration not relevant to such characterisation is any imputed intention of the parties. The characterisation of the rights conferred by a statutory licence as realty or simply a right to sever and remove timber as chattels, depends upon the provisions of the statute and regulations under which the licence is granted and the conditions attaching to the grant. Two authorities were relied upon in this connection by the Northern Territory.

89 In R v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; 158 CLR 327 the Northern Territory contended that grazing licences granted under s 107 of the Crown Lands Act 1931 (NT) conferred an estate or interest in Crown land negativing its character as "unalienated Crown land" claimable under the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth). The Court did not find the characterisation easy. Wilson J found it "more than ordinarily difficult" (352). The grazing right implied a right to remove certain of the natural produce from the land. The Minister could forfeit the licence for breach of its conditions. This was language "appropriate to an interest in land" (352). On the other hand, the Minister could cancel the licence without cause on three months’ notice. It therefore lacked the degree of permanence or stability associated with a property right: National Provincial Bank Ltd v Ainsworth [1965] UKHL 1; [1965] AC 1175 at 1247-1248 (Lord Wilberforce) cited by Mason J at 342. It was not assignable. The licensee had to apply for permission to make or erect improvements on the land. Mason J noted the similarity between the rights conferred by the grazing licence and the classical definition of a profit a prendre as:

... a profit a prendre confers a right to take from the servient tenement some part of the soil of that tenement or minerals under it or some of its natural produce, or the animals ferae naturae existing upon it ... (Alfred F Beckett Ltd v Lyons [1967] 1 Ch 449 at 482 per Winn LJ).

He nevertheless concluded (at 344):

The grazing licence is the creature of statute forming part of a special statutory regime governing Crown land. It has to be characterized in the light of the relevant statutory provisions without attaching too much significance to similarities which it may have with the creation of particular interests by the common law owner of land.

Both Mason and Wilson JJ held that the licence did not confer realty interests. Gibbs CJ, Murphy and Brennan JJ agreed. It may be noted that the miscellaneous licences granted in this case were not subject to cancellation without cause. Under reg 48 they were subject to forfeiture for default.

90 In Harper v Minister for Sea Fisheries [1989] HCA 47; 168 CLR 314, the Minister for Sea Fisheries of the State of Tasmania resisted a challenge to the validity of fees charged for commercial abalone licences, said to be duties of excise, by contending inter alia that they were fees for a profit a prendre. That is to say, they were fees for the right to take abalone rather than for the abalone taken. Mason CJ, Deane and Gaudron JJ said (at 325):

The right of commercial exploitation of a public resource for personal profit has become a privilege confined to those who hold commercial licences. This privilege can be compared to a profit a prendre.

Brennan J observed (at 335):

A fee paid to obtain such a privilege is analogous to the price of a profit a prendre; it is a charge for the acquisition of a right akin to property. Such a fee may be distinguished from a fee exacted for a licence merely to do some act which is otherwise prohibited (for example, a fee for a licence to sell liquor) where there is no resource to which a right of access is obtained by payment of the fee.

Dawson, Toohey and McHugh JJ agreed with Brennan J.

91 The legal character of the licenses issued to ACOC by the Northern Territory does not involve any consideration of the imputed intention of the Northern Territory government and ACOC of the kind relevant to a contract case. Even though it appears that they were the result of a tender process, their grant was not made pursuant to any contract. The attributes of each licence relevant to its characterisation are to be determined at the point of grant. The question whether there has been a supply of the timber depends upon their characterisation at that point and not on what ACOC did later.

92 Each licence granted was, by virtue of s 91 of the Crown Lands Act 1992 (NT) a licence "to go on Crown lands ... and to take from the land ... timber". The licences did not in terms provide for the sale of the timber. Rather, they granted a right of entry to the land and an associated right to sever and remove the timber. The royalty payments imposed must be categorised either as fees pursuant to s 94 of the Act or conditions imposed by the Minister under s 94(2). But they did not have the legal character of a purchase price for the timber removed. They were imposed as a condition of the enjoyment of the rights conferred by the licence.

93 There was a question whether the condition that the licensee "will, in respect of the licensed land ensure that all plantation trees including stumps are removed" imposed an obligation to remove all plantation trees or simply the whole of each plantation tree removed. The language of the condition might be said to favour the former construction. Lying against that view is the Northern Territory’s specific right of entry on to the licensed land at any time, absent compliance with that condition. That right was defined in condition 17 of the first licence as "a right to enter onto the Licensed Land and do all things necessary to that end" at the expense of the licensee. It makes more sense in its application to non-compliance with the removal obligation if the latter is seen as an obligation to remove the whole of each tree for then breach could be discerned at any time during the currency of the licence. A failure to comply with a condition to remove all the trees could only be ascertained towards the end of the licence term and would hardly be sensibly remedied by the Northern Territory exercising a "right" to remove all the trees. Another factor which raises a question about whether the licences were intended to require the removal of all trees is that it appears that successive licences were granted to ACOC over areas which in part overlapped.

94 Whether the licences required removal of all trees in the areas licensed or not, there was nothing in their terms and conditions which contemplated that the licensee would wait for the trees to reach a certain width, height and age. If the rights and obligations conferred by the licence were contractual, the test in Marshall v Green (1875) 1 CPD 35 might militate against the creation of a realty interest. But the contractual basis of that test must be understood. As Grove J said in that case:

... in determining the question whether there was a contract for an interest in land, we must look to what the parties intended to contract for. In all the cases this has been the test.

Mason J made the point in relation to the grazing licence in issue in R v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; 158 CLR 327 that the licence had to be characterised in the light of the relevant statutory provisions without attaching too much significance to similarities with the creation of particular interests by the common law owners of the land.

95 The grazing licence the subject of R v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; 158 CLR 327 which was held not to involve the grant of a realty interest, did not import any right to remove anything from the land or to disturb it in any way save for the consumption of natural produce by the stock. The right to enter and remove the timber under the licences in issue in this case, was coupled with obligations and incidental rights associated with the disturbance and rehabilitation of the land. They are indicative of something more than a mere right to enter and remove standing timber as chattels. The licences are better regarded in this case as grants in the nature of a profit a prendre conferring interests in the land to be exercised by the severance and removal of the trees upon the specified terms and conditions which involved extensive rehabilitation of the relevant areas.

96 On the basis of the construction of s 117 set out earlier, the grant of the licences did not constitute supply of the timber as a product for the purposes of s 117(1).
Was the timber a "staple commercial product"

97 If it be assumed that the timber removed by ACOC under the licences granted to it by the Northern Territory was, by those grants, supplied to it by the government, the question arises whether it was a staple commercial product for the purposes of s 117(2)(b). There is a preliminary question about the classification of what was supplied for the purpose of determining whether it was, at the time of supply, a staple commercial product. That translates, in the present case, to the question whether the relevant class is unmilled timber or unmilled timber of the species Callitris Intratropica. If the product class were rightly described as unmilled timber there would be no debate. The Court could take judicial notice of the fact that unmilled timber is a staple commercial product.

98 A different example may illustrate the point. No one would doubt that nails, bolts or screws are staple commercial products. These were examples offered in Pavel v Sony Corporation. It may be that the bulk of nails, bolts and screws which are sold fall within a particular range of sizes. There may be some of unusual size or dimension or composition for which there is very little demand comparatively speaking. They are still part of the class of staple commercial products comprised by nails, bolts or screws as the case may be. Of course a nail, bolt or screw built to specification for an infringing use, like the top structure for convertible automobiles which was considered in Aro Manufacturing Co Inc v Convertible Top Replacement Co Inc [1964] USSC 118; (1964) 377 US 476 would not be a staple article or commodity of commerce. In any event, it would be caught by s 117(2)(a) and the question of its character as a staple commercial product would be irrelevant.

99 Millable timber in the form of standing trees is not a product manufactured to a particular use. The evidence is clear that in the case of Callitris Intratropica its timber is suitable for use in a variety of applications for which timber generally is used. This was the evidence of Mr Brocklehurst and it was not contested. There was evidence to like effect provided from Mr Collins’ side of the debate in the submission made on his behalf by his accountant, Mr Cavanagh, in June 1995. The relevant product class to which it belonged, for the purposes of s 117(2)(b) was "millable timber".

100 For the preceding reasons the timber taken by ACOC from the Howard Springs Plantation area pursuant to the licences granted to it by the Northern Territory was a staple commercial product for the purposes of s 117 of the Patents Act 1990. Had the grant of the licences constituted a supply of that timber within the meaning of s 117(1) that supply would not have constituted contributory infringement for the purposes of that section.
Notice of Contention

101 It is not strictly necessary to decide the notice of contention having regard to the preceding conclusions. By the first ground of the notice the Northern Territory submitted that if it had supplied timber to ACOC the product used by ACOC for the assumed infringing purpose was a different product, namely milled wood and stripped bark. With respect that proposition is not tenable.

102 The second ground of the notice of contention relied upon the construction of s 117 advanced in Rescare Ltd v Anaesthetic Supplies Pty Ltd (1992) 111 ALR 205. That construction was not followed by the Full Court in Bristol-Myers Squibb Co v FH Faulding & Co Ltd [2000] FCA 316; (2000) 97 FCR 524. The view of the Full Court in Bristol-Myers [2000] FCA 316; 97 FCR 524 appears to give a construction to s 117 which has the advantage of giving it some utility with respect to method patents: see the discussion in Monotti, Contributory Infringement of the Process Patent under the Patent Act 1990: Does it exist after Rescare (Australian Intellectual Property Journal, Vol 6, 1995). However it is not necessary to decide the point in this case.

Conclusion

103 For the preceding reasons the appeal should be dismissed. The appellants should pay the respondent’s costs of the appeal.

I certify that the preceding one hundred and three (103) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Associate:
Dated: 20 September 2007

IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY	NTD 2 OF 2007

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	VINCENT JOSEPH COLLINS First Appellant MARYANN COLLINS Second Appellant
AND:	NORTHERN TERRITORY OF AUSTRALIA Respondent

JUDGES:	FRENCH, BRANSON AND SUNDBERG JJ
DATE:	20 SEPTEMBER 2007
PLACE:	DARWIN

REASONS FOR JUDGMENT

BRANSON AND SUNDBERG JJ

INTRODUCTION

The Patent

104 Mr and Mrs Collins are registered as owners of Australian Patent No 742711 entitled ‘Methods of producing essential oils from species of the genus callitris’. It appears that the date of the patent is 8 July 1998 (see s 65 of the Patents Act 1990 (Cth) (‘the Act’)).

105 Despite the title of the patent, the patent relates not only to methods of obtaining a blue, guaiazulene-containing oil from species of the genus callitris, it also relates to a product when produced by those methods. Claim 1 of the claims defining the invention is a claim for a method of obtaining the oil from a mixture of the bark and wood of Callitris Intratropica which is a species of the genus callitris. Claim 12 is expressed as follows:

‘A blue, guaiazulene-containing oil when produced by a method according to any one of claims 1-12 [sic].’

The Licences

106 The Northern Territory issued Miscellaneous Licences under the Crown Lands Act (NT) to Australian Cypress Oil Company Pty Ltd (‘ACOC’) after the date of the patent. These licences authorised ACOC to take timber from Crown Lands in an area known as the Howard Springs Plantation. It does not appear to be in dispute that the trees that constitute the Howard Springs Plantation are Callitris Intratropica.

The Application

107 On 4 November 2005 Mr and Mrs Collins filed an application claiming a declaration that the Northern Territory had infringed their patent and other relief. By their amended statement of claim they allege that the Northern Territory has supplied to ACOC a product within the meaning of s 117(1) of the Act, namely timber from trees of species of the genus callitris. They further allege that:

(a) ACOC, without their licence, used the timber to produce a blue coloured oil by a method protected by the patent; and

(b) the Northern Territory had reason to believe that ACOC would use the timber to produce the oil.

They claim that in the circumstances the Northern Territory has infringed their patent by reason of s 117 of the Act which is concerned with contributory infringement (see [134] below).

THE PROCEEDING AT FIRST INSTANCE

The Separate Questions

108 Following the close of pleadings, the learned primary judge directed that there be a separate trial of the issues as to whether:

‘(a) the Territory had supplied a product to ACOC the use of which would infringe the patent; and

(b) the product so supplied was capable of only one reasonable use, namely that of producing a blue coloured oil by the process protected by the patent, or the product is not a staple commercial product and the Territory had reason to believe it would be put to the infringing use complained of by the Collins.’

The Answers of the Primary Judge

109 Mr and Mrs Collins did not contend before the primary judge that the timber harvested under the licences was capable of only one reasonable use. It appears that the Northern Territory did not dispute that it had reason to believe that ACOC would use the timber harvested under the licences for the purpose of producing blue cypress oil. In any event, his Honour so found.

110 His Honour concluded:

(a) that the grant of the licences to ACOC did not amount to a supply of the timber to ACOC within the meaning of s 117; and

(b) the timber was a staple commercial product within the meaning of s 117(2)(b).

GROUNDS OF APPEAL

Was there a supply?

111 There are three grounds of appeal. The first ground has two elements which can be dealt with together. The first is that the primary judge erred in finding that there was no positive act of the Territory which amounted to a supply for the purposes of s 117(1). The second is that the primary judge wrongly held that the grant of the licences did not amount to the supply of timber to ACOC. The appellants have not identified any positive act other than the grant of the licences that could amount to a supply. We therefore concentrate on the second element.

112 The word ‘supply’ is defined in the Schedule to the Act so as to include:

‘(a) supply by way of sale, exchange, lease, hire or hire-purchase; and

(b) offer to supply (including supply by way of sale, exchange, lease, hire or hire-purchase).’

113 There are four licences covering the periods 6 July to 6 August 1998 and 1 April 1999 to 30 June 2001. They are issued under the Crown Lands Act (NT). Each licence is described as ‘Licence to go upon Crown Lands and take therefrom timber’. The grant is to go upon the land in question ‘and to take therefrom the abovementioned substance or article during the period.’ The grant is subject to various conditions.

114 The first licence requires the licensee to pay royalties of $2.50 per tree. The remaining licences require payment of royalties of five per cent of the FOB price of the essential oil and other products derived from the timber harvested. The licences for the third and fourth periods provide for an increase in the consideration payable by the licensee should GST be payable on any taxable supply.

115 The first licence contains the following special conditions:

‘14. the licensee will, in respect of the licensed land, ensure that all plantation trees including stumps are removed.

15. The licensee acknowledges that after extraction of the stumps, ... he is responsible for rehabilitation of the site to a standard which allows reasonable access by a tractor/slasher. All holes and other safety hazards shall be smoothed out (flatblading standard is envisaged) to the satisfaction of the Assistant Secretary, Land Administration, Department Lands, Planning and Environment.

16. The licensee acknowledges that Conditions 14 & 15 above will be undertaken to the satisfaction of the Department of Lands, Planning and Environment, at nil cost to the Territory.

17. If the licensee fails to observe and carry out the conditions outlined in Conditions 14 & 15 above of the licence on his part, the Territory will have a right to enter onto the licensed land and do all things necessary to that end and the expense and costs thereof, as determined by the Minister, will be borne and payable by the licensee on demand.’

116 The second licence contains conditions in the same terms as conditions 14, 15 and 17 of the first. It also contains two other presently relevant conditions:

‘19. It will be a condition of the licence that all works carried out are in accordance with an Approved Site Management Plan (Attachment A) agreed by Australian Cypress Oil Company Pty Ltd and the Department Lands, Planning and Environment.

...

22. The licensee acknowledges that Condition 20 & 21 above will be undertaken in accordance with the Site Management Plan ... at nil cost to the Territory.’

Conditions 20 and 21 correspond with conditions 14 and 15 of the first licence.

117 Apart from the inclusion of GST provisions, the conditions in the third and fourth licences are in the same terms as those in the second.

118 The licences do not define ‘plantation trees’. However the Approved Site Management Plan forming part of all but the first licence confirms what one would in any event conclude, namely that ‘plantation trees’ in condition 14 of the first licence and condition 20 of the other licences are the trees which the licence empowers the licensee to take. The Plan is headed ‘Forestry Operations in Softwood Plantations’. Clause 2.1 refers to operational compartments within the ‘Cyprus pine plantation areas’. Clause 2.2 deals with tracks used for the purpose of harvesting Cypress pines. Clause 4.5 requires stumps to be removed as harvesting progresses, and to be chipped and distilled along with the other parts of the trees.

119 The primary judge said at [25]:

‘[The licences] were permissive, as ACOC was not obliged to enter upon the Howard Springs land and lop or clear any trees and remove any timber. ACOC was permitted, but not obliged, to enter upon the Howard Springs land and to harvest the trees and remove the timber from that land.’

Condition 14 of the first licence and condition 20 of the other licences and their attendant conditions do oblige ACOC to remove all plantation trees including stumps. We do not accept the Territory’s submission that ‘all plantation trees’ means only those that are in fact removed. That is not the natural meaning of the words used. Nor does it conform to the evident intention behind the rehabilitation conditions, which contemplate that the removal process will leave the land bare of trees. The word ‘removed’ in each condition means, in our view, that ACOC must sever the trees from the ground and take them from the site rather than merely take away from the site such trees as have been felled. It is thus not correct to say that ACOC was not obliged to enter the land and harvest the trees and remove the timber therefrom from the land.

120 The Site Management Plans confirm this construction of the plantation removal conditions. Clause 2.3 is in part as follows:

‘All efforts associated with sediment control to minimize erosion should be undertaken during the harvest operation. A feature of sediment control will be the encouragement of selected grass species following harvest of the trees. A suggestion for problem areas which are highly erodable due to the degree of slope ..., or fragility of soil, is to harvest only alternate rows of trees, leaving intact rows to act as contour banks until a grass cover is well established over the harvested areas. When adequate ground cover has stabilised the soil, further rows of trees will be removed.’

Clause 4.4, under the heading ‘Rehabilitation of Harvested Areas’, requires all reasonable steps to be taken to ensure that trash and residue are eliminated at the completion of harvesting. Clause 4.5 is rendered at [118]. Clause 5, dealing with the timing and sequence of operations, requires specific blocks to be harvested, remediated, and handed over in accordance with the Department’s requirements. Clause 7.3 requires all refuse introduced to the plantation as a result of harvesting operations to be removed.

121 All these provisions of the Management Plan confirm our view of the intention behind the plantation removal conditions.

122 The licences here in question are unlike conventional licences that merely permit someone to do something on another’s land. Cf Thomas v Sorrell (1673) Vaugh 330 at 351 [1673] EWHC J85; [124 ER 1098 at 1109] and Reg v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; (1982) 158 CLR 327 at 352. They differ also from a conventional profit à prendre, because what ACOC has is not so much a license to enter upon land and take timber but an obligation to do so. Cf Meneling Station at 352.

123 Despite the fact that we are unable to accept the primary judge’s ‘mere licence’ reason for concluding that the grant of the licences did not amount to a supply, it is still necessary to determine whether, on the view we take of the licences, there was a supply.

124 By the licences ACOC agrees to pay the Territory either sums of money for the trees it binds itself to take from the Territory’s land or a royalty referable to the oil etc produced from the trees taken. In our view the licences amount to sales by the Territory of its trees for the purposes of the definition of ‘supply’. But in any event, the definition is an inclusive one. The ordinary meanings of ‘supply’ given in The Australian Oxford Dictionary are:

‘1. provide or furnish (a thing needed)

5. (often foll. by with) provide (a person etc with a thing needed)
6. meet or make up for (a deficiency or need etc).’

There is no doubt that ACOC was in need of the Territory’s timber. It was unable to obtain it without the Territory’s consent. The Territory said ACOC could have the timber so long as it paid for it. It would grant ACOC a licence to come onto its land and take the timber. Indeed it obliged ACOC to take it. In those circumstances, in the events that happened, the Territory provided or furnished the timber to ACOC, and thus supplied it to ACOC. The timber so supplied was felled but unmilled trees of the species Callitris Intratropicus.

125 Since writing the foregoing we have read French J’s draft reasons in which he concludes, on the basis of Marshall v Green (1875) 1 CPD 35 and later cases, that there was no supply of timber by the Territory. As appears from his Honour’s reasons, this conclusion is reached by a complicated route. Marshall v Green was a case on the Statute of Frauds. The case law is well summarised in Megarry and Wade, The Law of Real Property 5th ed (1984) at 574. At the conclusion of their summary the authors say:

‘The principle behind these rules is not easy to discern; the statute was perhaps never intended to apply even to fructus naturales, though it is now too late to establish the law in this sense. One possible test is whether the produce will derive benefit from the land between sale and severance; yet the effect of such a rule, strictly applied, would vary with the season of the year. Another possible test is whether any property in the products passes to the purchaser while they are still in the soil. In truth, however, ‘taking the cases altogether ... no general rule is laid down in any one of them that is not contradicted by some other’: Rodwell v Phillips [1842] EngR 237; (1842) 9 M&W 501 at p 505, per Lord Abinger CB.’

We cannot believe that Parliament intended to import into the construction of the expression ‘supply of a product’ in s 117 of the Act, distinctions derived from cases on the Statute of Frauds about the difference between fructus naturales and fructus industriales, based on a principle that is not easy to discern and contradictory decisions that establish no general rule.

Contributory infringement at common law

126 The second and third grounds of appeal challenge his Honour’s conclusion that the timber which ACOC obtained from the Northern Territory was not a staple commercial product within the meaning of s 117(2)(b). Before turning to s 117 it is appropriate to give consideration to the authorities concerning contributory infringement at common law.

127 In Walker v Alemite Corporation [1933] HCA 39; (1933) 49 CLR 643 at 658 Dixon J, with whom McTiernan J agreed, speaking of what he called ‘participation in infringement’, said (omitting some citations):

‘it is settled law that the exclusive property in a combination invention is not infringed upon by the sale of the components ...; that selling articles to persons to be used for the purpose of infringing a patent is not an infringement of the patent ..., and that sale with a knowledge that the purchaser will use the articles for infringement is not itself an infringement although the vendor gives the purchaser an indemnity: the vendor must have made himself a party to the act of infringement .... Further, in the opinion of Vaughan Williams LJ [in Dunlop Pneumatic Tyre Co v David Moseley & Sons Ltd [1904] 1 Ch 612 at 616, 618-619], it is not enough that the article sold has no other use than a use in the course of what amounts to infringement. The basis upon which these rules rest is that whatever is not included in the monopoly granted is publici juris and may be freely used as of common right. Narrow as this view of what constitutes participation in infringement may appear, it requires us, in my opinion, to hold that the claims 4 to 11 of the specification were not infringed.’

The observations of Rich J at 650 and Starke J (with whom Evatt J agreed) at 654 are to the same effect. Their Honours relied on Dunlop Pneumatic Tyre Co Ltd v David Moseley & Sons Ltd [1904] 1 Ch 612 for its ratio, namely that the sale of a component part of a combination, the vendor knowing that the purchaser intends to use the article for the purpose of infringing the patent, is not an infringement by the vendor. However they did not mention Vaughan Williams LJ’s opinion as to an article with only one possible use.

128 More recently the Full Court of this Court (Burchett, Sackville and Lehane JJ) in Ramset Fasteners (Aust) Pty Ltd v Advanced Building Systems Pty Ltd (1999) 164 ALR 239, extensively reviewed the English and Australian cases concerning contributory infringement. That matter, as their Honour’s observed at [1], had followed a lengthy and winding course with the consequence that the Act, which introduced s 117, had no application. At [41] their Honours said:

‘These authorities show that liability for infringement may be established, in some circumstances, against a defendant who has not supplied a whole combination (in the case of a combination patent) or performed the relevant operation (in the case of a method patent). The necessary circumstances have been variously described: the defendant may "have made himself a party to the act of infringement"; or participated in it; or procured it; or persuaded another to infringe; or joined in a common design to do acts which in truth infringe. All these go beyond mere facilitation. They involve the taking of some step designed to produce the infringement, although further action by another or others is also required. Where a vendor sets out to make a profit by the supply of that which is patented, but omitting some link the customer can easily furnish, particularly if the customer is actually told how to furnish it and how to use the product in accordance with the patent, the court may find the vendor has "made himself a party to the [ultimate] act of infringement". He has indeed procured it.’

129 In general terms the distinction drawn by the common law is thus between mere facilitation on the one hand and inducement or procurement of the act of infringement on the other. As Dixon J said in Walker, the courts have taken a ‘narrow’ view of what constitutes participation in infringement.

130 Walker and Ramset illustrate the two sides of the distinction. In Walker the invention was a lubricating apparatus. One element of the combination claims of the patent was a grease cup. It was this component that the appellant had manufactured and sold. The patentee claimed that the manufacture and sale was an infringement by the appellant because the grease cup would or must inevitably be used with the other parts of the patentee’s invention. There was no evidence of instructions by the appellant as to how to construct or use the patented apparatus. It was thus a case of mere facilitation, within the general proposition that there is no infringement in making or selling separate elements of a combination, even though the manufacturer or vendor knows perfectly well that those elements are destined eventually to be combined with others so as to constitute an infringement. By way of contrast, in Ramset the Full Court said at [54]:

‘the conclusion is inescapable that when Ramset supplied the equipment complete with release ropes and instructions for use, it procured the infringements which followed.’

IPAC report

131 The Industrial Property Advisory Committee (IPAC) that reported in August 1984: Patents, Innovation and Competition in Australia, thought the common law of contributory infringement in need of expansion for the greater protection of patentees. In paragraph 14.2 of its Report the Committee said:

‘A patentee may encounter serious difficulty in enforcing his patent where it is prone to infringement by an eventual consumer who is supplied by an unauthorised person with the means to infringe.

For example, a process patent for using a selective herbicide which is a known chemical would be infringed by a farmer who bought a container and followed instructions for use which, when followed, unknown to the farmer, resulted in infringement of the patent. Even if the patentee were prepared to bear the high cost of detecting infringement by the farmer and then to bring infringement proceedings, the result would almost certainly be unsatisfactory. The farmer would ordinarily be unaware of the patent and an award of damages would therefore be most unlikely. The farmer would be left with a stock of herbicide he was forbidden to use, and the patentee would find himself with no damages and a dissatisfied potential customer. To complicate the matter, there may be hundreds or thousands of such ultimate consumers.

It is unreasonable and wasteful of resources for a patentee to have to sue all of the direct infringers with so unsatisfactory a result in each case, when the supplier is, in a real sense, far more responsible for the commission of the infringing acts.

We believe that it would be far more effective, realistic and just for the patentee to be able to take action against the supplier or middleman who facilitates the commission of the infringing act by the ultimate consumer. The most common example of indirect, secondary or contributory infringement is where goods, materials or parts are supplied to a consumer with the intention that they be used, consumed or assembled in a way which constitutes an infringement of a patent. The intention might be evident, for example, from the provision of brochures containing instructions on how to make a product or use a process which would infringe a patent, or by advertisements soliciting the commission of an act which would infringe.

In some countries there can be no indirect infringement unless a direct infringement has in fact taken place. This imposes unnecessary restrictions on the patentee. A distinction may be drawn between those cases where a supplier knows that goods sold will be used to infringe or takes positive action to induce another to infringe, and those where he makes goods available merely knowing that they may possibly be used for an infringing purpose. It would be an unwarranted interference with commercial activities if a patentee were to be able to prevent another person from selling a staple commodity with a wide variety of possible uses simply on the grounds that it might be used for an infringing purpose. This is quite distinct from the case where there is no possible use except as part of an infringing product or in an infringing process. Thus the importer of a kit of parts which is designed to be assembled into an infringing article should be liable as an indirect infringer even though it cannot be shown that an infringing product has in fact been assembled in Australia.

We believe that no action should be allowed against the supplier of a staple product unless it can be shown that the supply was accompanied by a positive inducement to perform acts which would infringe a patent, and irrespective of whether the product was in fact subsequently used in a direct infringement. Where the goods supplied have no reasonably conceivable use other than an infringing use, however, the patentee should be able to stop the supply at its source by suing the supplier for infringement.
...

[33] WE RECOMMEND that in general the supply of goods whose only use would infringe a patent, or which are accompanied by a positive inducement for the ultimate consumer to perform actions which would innocently or knowingly infringe a patent, should itself be an infringement of the patent.’

132 The herbicide example given by IPAC is based on the facts of Dawson Chemical Company v Rohm and Haas Company 448 US 917 (1980). That case concerned s 271 of the Patents Act 1952 (US), a contributory infringement provision. However the decision turned on a feature of the section that has no counterpart in s 117.

133 The explanatory statement that accompanied the bill for the Act which introduced s 117, states that the section was designed to implement IPAC’s recommendation 33. It also indicates that s 117 was intended to ‘remove an area of uncertainty under Australian patent law and harmonise it with the laws of Australia’s major trading partners’.

Section 117

134 Section 117 provides:

‘(1) If the use of a product by a person would infringe a patent, the supply of that product by one person to another is an infringement of the patent by the supplier unless the supplier is the patentee or licensee of the patent.

(2) A reference in subsection (1) to the use of a product by a person is a reference to:

(a) if the product is capable of only one reasonable use, having regard to its nature or design - that use; or
(b) if the product is not a staple commercial product - any use of the product, if the supplier had reason to believe that the person would put it to that use; or
(c) in any case - the use of the product in accordance with any instructions for the use of the product, or any inducement to use the product, given to the person by the supplier or contained in an advertisement published by or with the authority of the supplier.’

135 It can be seen from the discussion of the pre-s 117 law at [24] to [27] that the use the subject of s 117(2)(a) is probably an expansion of the common law position. We say ‘probably’ because, although all members of the Court in Walker relied on the Dunlop case, Dixon J may have had reservations about Vaughan Williams LJ’s obiter observation at 618-619 that even if the article sold has no other use than a use in the course of what amounts to infringement, there will be no contributory infringement. However, in Ramset at 254 at [33] the Full Court, after quoting the obiter passage, said:

‘As was pointed out by Buckley LJ (with whom Goff and Eveleigh LJJ agreed) in the later case Belegging-en Exploitatiemaatschappij Lavender BV v Whitten Industrial Diamonds Ltd [1979] FSR 59 at 65, this must be right because "goods which cannot be used otherwise than in an infringing manner may nevertheless be disposed of without any infringement. They may, for example, be exported".’

The use the subject of s 117(2)(b) is also an expansion of the common law, even though restricted to non-staple products. A supplier’s ‘reason to believe’ was never sufficient to found contributory infringement at common law. Even knowledge that the purchaser would use the article for infringement was not enough. The use the subject of s 117(2)(c) would appear to reflect the common law position.

Was the Timber a Staple Commercial Product?

The Law

136 The Macquarie Dictionary contains the following definition:

‘staple noun 1. a principal commodity grown or manufactured in a locality. 2. a principal commodity in a mercantile field; goods in steady demand; goods of known or recognised quality. 3. a principal item, thing, feature, element, or part. 4. the fibre of wool, cotton, flax, rayon, etc., considered with references to length and fineness. 5. a particular length and degree of fineness of the fibre of wool, cotton, etc. – adjective. 6. chief or prominent among the products exported or produced by a country or district; chiefly or largely dealt in or consumed. ... 7. chief or principal, as industries. 8. principally used: staple subjects of conversation.’

137 The Oxford English Dictionary contains the following relevant definitions:

‘staple, n
...

b. A principal industrial product of a country, town or district; occas. the commodity principally dealt in by a person or class of persons. Also the principal or basis food on which a community lives.’

‘staple, a

1. Originally, qualifying commodity or words of similar meaning: Having a foremost place among the products exported by a country or place. Hence, in wider sense: Having the chief place among the articles of consumption, the industries, employments etc. of a place, a people, or an individual, or among the constituent elements of anything.’

138 Some guidance as to the intended meaning in the Act of the expression ‘staple commercial product’ can be found in the legislative history of s 117 discussed above. That history indicates that it is appropriate in this context to have regard to the laws of Australia’s major trading partners.

139 The expression ‘staple commercial product’ is found in s 60(3) of the Patent Act 1977 (UK) which corresponds with the European Economic Community Council Agreement Relating to Community Patents Article 26 (‘ARCP art 26’). It is convenient to set out that article:

‘Article 26

Prohibition of indirect use of the invention

1. A Community patent shall also confer on its proprietor the right to prevent all third parties not having his consent from supplying or offering to supply within the territories of the Contracting States a person, other than a party entitled to exploit the patented invention, with means, relating to an essential element of that invention, for putting it into effect therein, when the third party knows, or it is obvious in the circumstances, that these means are suitable and intended for putting that invention into effect.

2. Paragraph 1 shall not apply when the means are staple commercial products, except when the third party induces the person supplied to commit acts prohibited by Article 25 [which prohibits direct use of invention]’. (emphasis added)

140 The wording of ARCP art 26 reflects an aspect of the definition of infringement in the patent law of the United States of America. United States Code Title 35 – Patents, which was enacted in 1952, relevantly provides in s 271(c):

‘Whoever offers to sell or sells within the United States or imports into the United States a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.’ (emphasis added)

141 In Theta Developments Pty Ltd v Leonardis (2002) 59 IPR 368 at 388 Wilcox and French JJ held that a ‘bottom cover spacer’ used in connection with the construction of building foundation frameworks was a ‘staple commercial product’. However, their Honours did not set out the process of reasoning that led them to this conclusion. In Hexal Australia Pty Ltd v Roche Therapeutics Inc (2005) 66 IPR 325 at 331 at [30] Stone J noted that there is a dearth of authority in Australia on the meaning of ‘staple commercial product’ in s 117(1)(c) of the Act.

142 In the United Kingdom there has been limited judicial consideration of the phrase ‘staple commercial product’. In Pavel v Sony Corporation (Patents County Court, 13 January 1993, unreported) Judge Ford at 6.4-6.5 observed:

‘In ordinary language, a staple commercial product is a commodity or raw material, not a manufactured article like a tape cassette player with headphones. Since the language of Section 60 has been framed to have, as nearly as practicable, the same effects in the United Kingdom as the corresponding provisions of the Community Patents Convention ..., guidance may be obtained, in the absence of English authority in case law, from the parallel French and German texts of the Convention and commentary thereon.

...

The German text has been interpreted to mean products that are of a kind which is needed every day and can be generally obtained, such as nails, screws, bolts, wire, chemicals, plastics etc ("Denkschrift zu Art. 30 GPU" in Blatt für Patent – Muster – und Zeichenwesen, Vol. 79 p 333).’

143 The learned authors of Terrell on the Law of Patents (London, Sweet & Maxwell 2006), in giving consideration to s 60(2) of the Patents Act 1977 (UK), at para 8.37 state:

‘The use of the word "staple" is presumably a reference to raw materials or other basic products commonly available and with a multitude of possible applications, and the purpose of the subsection is to protect the supplier of such products even if he has knowledge that they were to be put to an infringing purpose. The scope of the words is far from clear and the dividing line between protecting the supplier of raw materials on the one hand and giving a fair monopoly to the patentee must be a question of fact in each case.’

144 Examination of United States authorities similarly provides little guidance on the precise distinction between staple and non-staple products. In Aro Manufacturing Co Inc v Convertible Top Replacement Co Inc [1964] USSC 118; (1964) 377 US 476 the Supreme Court was concerned with a combination patent covering a top-structure for convertible automobiles. Mr Justice Brennan, delivering the judgment of the Supreme Court, at 487-488 described the language of s 271(c) as fitting perfectly the conduct of Aro in selling replacement fabrics for the top-structures. His Honour observed that the fabric components were hardly suitable for any non-infringing use. However, although clearly satisfied that the fabric components were not a staple article or commodity of commerce suitable for substantial non-infringing use, his Honour gave no consideration to the defining characteristics of a staple article of commerce.

145 In the earlier case of Carbice Corporation of America v American Patents Development Corporation (1931) 283 US 27, which preceded the codification in the United States of the law of contributory infringement, the Supreme Court had denied relief to a patentee who sought to enjoin a manufacturer of dry ice from supplying its product for use in a manner which allegedly infringed the patent. While not using the phrase ‘staple article of commerce’, the Court noted at 29-30 that dry ice was an unpatented article of commerce whose properties had long been known to the public.

The Product

146 By their amended statement of claim the appellants allege that the Northern Territory supplied to ACOC:

‘a product within the meaning of s 117(1) of the Patents Act, namely timber, from trees of species of the genus callitris.’

The particulars of supply provided in the amended statement of claim refer particularly to one species of the genus callitris, namely Callitris Intratropicus. As indicated above, we conclude that the Northern Territory supplied felled but unmilled trees of the species Callitris Intratropicus to ACOC.

147 The Northern Territory adduced evidence at trial from Paul Kingston Wharam, Director – Land Administration of the Northern Territory Department of Planning and Infrastructure. Mr Wharam gave evidence as follows:

‘6. Callitris intratropica is a specie of tree which has been cultivated in certain areas within the Northern Territory. The Howard Springs Pine Plantation ("the Howard Springs Plantation") is one area in which these trees were established by cultivation by a previous Northern Territory Government department in or about the late 1960’s. The Howard Springs Plantation is located on those parcels of Crown Land known as Portions 2818, 2819, 2820, 2821 and 2822 Hundred of Bagot.

7. At times between in or about 1993 – 2001, responsibility for issuing permits or licences in respect of the Howard Springs Plantation rested with either the former Conservation Commission of the Northern Territory ("the Commission") or the DPI (and its predecessor departments).

8. Permits or licences for the removal of trees from Crown Land are issued for a wide range of purposes. On occasions, they are issued at the request of an applicant for purposes particular to that applicant and with no specific complimentary reason for removal by the Northern Territory. On other occasions, the Northern Territory has a particular desire for the removal of trees and actively invites applications for permits or licences for this purpose, sometimes through a competitive tender process.’

148 Mr Wharam annexed to his affidavit a copy of each permit and licence issued in the period 1993 – 2001 for the thinning or harvesting of Callitris Intratropica from the Howard Springs Plantation. Those permits and licences reveal the following.

149 On the 30 April 1993 a permit was issued to Mr Collins under By-law 13 of the Territory Parks and Wildlife Conservation By-Laws. That permit authorised ‘crop thinning of Callitris Intratropica’. The permit was subject to the execution of an operational agreement between the Conservation Commission of the Northern Territory and Mr Collins which recorded agreement reached –

‘as to the manner in which the activities permitted under the permit are to be conducted, the manner in which ... royalties payable in respect of the permit are to be paid, and the rights and obligations of the parties in respect of the Operation.’

One of the obligations of Mr Collins under the operational agreement was to effect public liability insurance in respect of the crop thinning or harvesting operation and to insure all property owned by the Commission used in the course of the operation. Another obligation of Mr Collins under the operational agreement was to ‘promote the principle of environmental protection’ and to ensure that ‘minimal environmental impact’ was caused by the operation.

150 On 16 April 1996 a Miscellaneous Licence was issued to Blue Cypress Holdings Pty Ltd under the Crown Lands Act (NT) authorising it to go upon Crown Land at Howard Springs and harvest timber. The licence was subject to special conditions pursuant to which the licencee was to pay royalties of $2.50 per tree collected from the licence area and maintain public risk insurance in respect of the licenced area. The special conditions also controlled the manner in which trees were to be harvested, the site managed and the land was to be rehabilitated. The Department of Lands, Planning and Environment undertook not to issue any other licence for harvesting of Callitris Intratropica for oil extraction on land under its control for the period of the licence.

151 On 3 July 1998, 10 May 1999, 29 March 2000 and 15 May 2001 Miscellaneous Licences under the Crown Land Act were issued to ACOC in comparable terms to that earlier issued to Blue Cypress Holdings but without the undertaking not to issue other licences for harvesting Callitris Intratropica for oil extraction.

152 Evidence was also adduced from Mr Wharam concerning other applications for licences or permits concerning Callitris Intratropica. On 13 December 1999 a Mr Trow of Trojon Fencing & Fabrication Pty Ltd was granted approval to remove timber from the windrows on Section 67 Hundred of Bagot for the purpose of wood chipping. The approval was subject to a number of conditions including that the woodchips were only to be supplied to a nominated party and were not to be supplied to any other business or person. Another application from Mr Trow to remove ‘Cyprus pine’ trees was refused because there was currently a Miscellaneous Lease over the area. In April 2001 Trojon Fencing & Fabrication also expressed interest in utilising ‘local timber resources’ to produce sawdust for cattle boats and potentially other markets. This expression of interest was not restricted to the species of the genus callitris. There is no evidence that it resulted in an agreement to grant Trojon Fencing & Fabrication access to any timber resources. The proprietor of Soon Lee Enterprises was granted a Miscellaneous Licence dated 13 April 1994 to take 500 cypress pine trees and dead timber from Sections 67, 70 and 71 Hundred of Bagot for export to Taiwan subject to the provision of the Crown Lands Act and the Regulations thereunder. A request was made by Leslie Allaway on 18 April 2001 for a miscellaneous lease to harvest cypress pine for horticultural and landscaping purposes but it appears that no such licence was granted. Gimbells Pty Ltd, a company concerned with landscaping and irrigation, expressed interest in March 1994, and again in August 1994 and March 1995, in putting a proposal to the Northern Territory for the clearing of the Howard Springs Plantation and the use of pine forest resources to produce landscape supplies. There is no evidence that this proposal was accepted.

153 The Northern Territory also adduced evidence at trial from Peter Spafford Brocklehurst, forester, of the Northern Territory Department of Natural Resources, Environment and the Arts. Mr Brocklehurst gave evidence of pure and mixed stands of Callitris Intratropica at four sites in the Northern Territory. He stated that Callitris Intratropica was a commonly occurring but minor component of most of the native eucalyptus forests in the Top End region. His evidence was that, while in some instances it forms pure stands, it is generally of more scattered or patchy occurrence and was probably more common thirty years ago. Mr Brocklehurst was aware of Callitris Intratropica being used for the following applications:

(a) poles, fence posts and rails;

(b) flooring;

(d) oil extraction;

(e) mulch; and

(f) traditional indigenous uses.

154 Mr Brocklehurst also gave evidence that sporadic salvage logging had occurred through most Top End forests in the past including Maccasan utilisation of Callitris Intratropica from coastal stands some centuries ago. He said that Callitris Intratropica had also been milled at Maningrida, Melville Island and Murganella in the past. Other evidence before his Honour indicated that Callitris Intratropica was virtually abandoned by the Northern Territory as a plantation species in about 1977 because such plantations did not prove economic.

155 Mr Brocklehurst’s evidence was broadly supported by the evidence of Dr Jeremy Russell-Smith, a fire management and ecological consultant.

156 No witness gave evidence that there is presently an established wholesale or retail market for unmilled trees of species of the genus callitris, and in particular Callitris Intratropica. That is, it does not seem that such trees are a commodity or raw material that is commonly or readily available in the sense that a person who wished to obtain it could purchase it from a supplier without difficulty. This conclusion gains support from the fact that none of the licences and permits of which Mr Wharam gave evidence authorised the harvesting of Callitris Intratropica trees for the purpose of wholesale or retail sale.

157 Rather, the evidence before his Honour suggests that a person wishing to obtain unmilled Callitris Intratropica trees, at least in the Northern Territory, must apply to the Crown for a licence or permit to harvest the trees from Crown Land. For such a licence or permit to be granted, it appears that the applicant must assume significant obligations, including insurance and operational obligations, in respect of the harvesting process.

158 It would be unhelpful for this Court to hazard a comprehensive test for the purpose of determining whether any particular product is a ‘staple commercial product’ within the meaning of s 117(2)(b) of the Act. However, it seems to us that a quality of such a product is that it is an item of commerce in the sense that it is ordinarily available for purchase from an entity that trades in that product. In our view, having regard to the evidence reviewed above, unmilled Callitris Intratropica trees, at least in the Northern Territory, are not a ‘staple commercial product’ within the meaning of s 117(2)(b) of the Act.

159 On the approach we consider it appropriate to adopt, it is immaterial that timber, generally, or millable timber in the form of standing trees, is a staple commercial product. ACOC did not want, and the Northern Territory did not supply to it, the generic product timber or generic standing trees. The terms of the licences, and particularly the requirement of the licences (other than the first licence) for a royalty payment calculated by reference to the essential oil produced from the timber harvested, make clear that the supply was of unmilled trees of a particular species. The critical issue, in our view, is whether unmilled trees of the species Callitris Intratropica are a staple commercial product within the meaning of the section. As indicated above, we conclude that, at least in the Northern Territory, they are not. The undertaking given by the Department of Lands, Planning and Environment in the licence discussed in [150] above is persuasive in this regard.

NOTICE OF CONTENTION

160 The Territory’s notice of contention seeks to uphold the primary judge’s decision on two grounds not relied on by his Honour. The first is:

‘That the "product" said to be supplied, however described, was not a "product" the use of which would infringe the subject patent for the purposes of section 117 of the Act.’

161 In its written submissions the Territory contended that ‘while the trees may contain the requisite bark and wood, the provision on the one hand of "Tree at Stump" and on the other of milled wood and stripped bark are sufficiently different so as to preclude the purported supply of the Trees from constituting a supply of the requisite "bark and wood"’.

162 The primary judge recorded the Territory’s submission, but did not express an opinion on it.

163 As we understood the submission, it was directed to the opening part of s 117(1), and was in substance that what was used by ACOC was milled wood and stripped bark and what was supplied was trees, so that the product that was used was not the product that was supplied. What actually happened was that ACOC came onto the Territory’s land and with its permission cut down the trees and took possession of the severed parts. Accordingly, what was supplied was felled trees or, for practical purposes, severed tree trunks. ACOC then stripped the bark from the timber and milled the remaining wood and subjected the bark and wood to its process in order to produce the oil. In the ordinary use of words ACOC used the tree trunks by stripping off the bark and milling the wood and using both in its process. That is plainly a use of the tree trunks. What was supplied and what was used are the same thing.

164 The second ground in the notice of contention is

‘That the product that could be relevantly described as an input into the process in the subject patent was:
(i) the bark and wood of Callitris Intratropica; and/or
(ii) the bark and wood of one or more species of the genus Callitris;
whereas what was purportedly ‘supplied’ in the present case was Trees of the species Callitris Intratropica.’

In the Territory’s written submissions it was said that the two contentions in its notice were considered at [23] and [24] of his Honour’s reasons, but that he made no finding one way or the other. The paragraphs in question are in fact [22] and [23] of the reasons. Paragraph 23 deals with the first ground that we have rejected. At [22] his Honour said:

‘If I were to accept the Territory’s contention, it would follow that s 117(1) did not apply to the "supply" of the timber to ACOC by the Territory in any event, because ACOC’s use of the product supplied (the timber) did not itself infringe the patent.’

165 The ‘Territory’s contention’ was based on s 13(1) of the Patents Act:

‘Subject to this Act, a patent gives the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit the invention.’

The word ‘exploit’, in relation to an invention, includes:

‘(a) where the invention is a product – make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or

(b) where the invention is a method or process – use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.’

The argument was that where a patent is in respect of a method or process, the only means by which the use of a product could infringe is if the use constitutes the making, hiring, selling etc of a product resulting from the use of the patented process. It was said to follow from this that the word ‘product’ in s 117 could never apply to an input into a process.

166 This submission was founded on Rescare Ltd v Anaesthetic Supplies Pty Ltd (1992) 111 ALR 205. So far as relevant to the present case, Rescare concerned claim 9 of a patent over an invention entitled ‘Device for treating snoring sickness’. The device provided a means of overcoming obstructive sleep apnoea, and involved treatment with continuous positive airway pressure applied via a nose mask. Most of the claims of the patent were apparatus claims. Claim 9, as notionally amended for presently immaterial reasons, was a method claim:

‘A method of treating ... obstructive sleep apnoea in a patient comprising: applying air through a nose piece at a pressure maintained slightly greater than atmospheric substantially continuously throughout the breathing cycle.’

The applicant patentee complained that the respondent had promoted, displayed and offered for sale at two hospitals apparatus for administering continuous positive airway pressure to treat obstructive sleep apnoea. It relied on s 117(2)(c). Gummow J said:

‘the applicant urges ... that there is a relevant use if the respondent's devices are used in accordance with any instructions for use or in accordance with any inducement to use them, in either case given by the supplier or contained in an advertisement published by or with the authority of the supplier. Therefore, it is submitted, the supply of the allegedly infringing devices by the respondent, with instructions for use, is itself an infringement of claim 9, a method claim, by the respondent as supplier.

The difficulty with that proposition is that a pre-condition to the operation of s 117 in relation to a method claim such as claim 9, is that there is a product the use of which by the respondent would infringe claim 9. In other words, that user would have to amount to an "exploitation" within the monopoly conferred by s 13, which is to be read with par (b) of the definition of "exploit".

As I have indicated, where the invention relevantly claims a method or process, exploitation occurs, other than by use of the method or process, only by the doing of an act mentioned in para (a) of the definition of "exploit". There must be an act done "in respect of a product resulting from such use". Here ... there is no such product with the result that, in a case such as the present, s 117 has no operation.’

167 On appeal to the Full Court, Lockhart J, with whom Wilcox J agreed, upheld Gummow J’s construction of s 117, namely that it is a precondition to the operation of the section in relation to a method claim that there be a product the use of which would infringe that method claim: Anaesthetic Supplies Pty Ltd v Rescare Ltd [1994] FCA 1065; (1994) 50 FCR 1 at 24.

168 In Sartas No 1 Pty Ltd v Koukourou & Partners Pty Ltd [1994] FCA 1529; (1994) 30 IPR 479 at 495 Gummow J repeated what he had said in Rescare.

169 Doubt was cast on the Rescare approach in Bristol-Myers Squibb Co v FH Faulding & Co Ltd [2000] FCA 316; (2000) 97 FCR 524. The appellant was the proprietor of two petty patents for methods of administering taxol, a drug having anti-carcinogenic properties. The claims of both patents involved a method of administering a certain dosage of taxol over a specified period of time. The respondent sold and supplied taxol to doctors and hospitals, together with a product information guide which included recommendations that the drug be used for the treatment of cancer, in the same dosage amounts and over the same period of time as specified in the patents. The primary judge upheld the respondent’s cross claim for revocation on the grounds that the invention lacked novelty, the claims were not fairly based, and there was no inventive step. His Honour was of the view that had the patents been valid, they would not have been infringed. In rejecting the appellant’s reliance on s 117 his Honour applied Rescare. The Full Court affirmed the decision as to revocation on the ground of lack of novelty. Black CJ and Lehane J nevertheless went on to consider infringement. At [84] their Honours said that the use of taxol in accordance with the method recommended in the respondent’s guide would be an infringement by the doctors and hospitals. But did the respondent infringe? That depended on s 117.

170 After noting that the Full Court’s observations in Rescare about s 117 were obiter, and that the approach adopted in that case resulted in s 117 having a very limited operation, if any, Black CJ and Lehane J continued at [95]:

‘it is perhaps a pity that the drafter chose to use the phrase ‘use of a product’, which contains such a clear reference to the terminology of par (a) of the definition of "exploit". But s 117 provides its own dictionary, in subs (2). And our paraphrase of s 117(1), incorporating subs (2)(c), shows, in our view, that the construction urged by the appellant is not only a possible construction but a literal one. That literal construction being consistent with the apparent purpose of the provision, it is, in our view, plainly to be preferred.’

171 The ‘paraphrase’ referred to, which appears at [87] of Bristol-Myers, is in fact the appellant’s (the patentee’s):

‘If the use of [taxol] by a [medical practitioner], in accordance with any instructions for the use of taxol ... given to the [medical practitioner] by the [respondent] ..., would infringe [either of the petty patents], the supply of that [taxol] by [the respondent] to [the medical practitioner] is an infringement of the [petty patent] by the [the respondent] ....’

172 Put shortly, the joint judgment in Bristol-Myers involves putting aside the definition of ‘exploit’ and resorting instead to the uses referred to in s 117(2). For the purposes of the present case a paraphrase of s 117(1), incorporating sub-s (2)(b), would read:

‘If:
(a) ACOC’s use of the product would infringe the patent, and
(b) the Territory, as supplier of the product to ACOC, had reason to believe that ACOC would so use the product,
then, the supply of the product is an infringement of the patent by the Territory.’

173 If the product used in (a) and supplied in (b) is the same thing, namely the timber, infringement by the Territory is established (assuming the Territory had reason to believe). If, as contended by the Territory, it was not the timber that was used by ACOC but the selected bark and wood from the timber, then assuming the timber and its bark and wood are different products, infringement by the Territory will not be established. ACOC will not have used the product that the Territory supplied to it. As appears from [163], we have concluded that the product used and that supplied are the same thing.

174 Because the primary judge decided the separate question against the appellants on ‘supply’ and ‘staple commercial product’, he did not need to choose between Rescare and Bristol-Myers. His Honour did at [22] of his reasons say that, had there been no other obstacle in the appellants’ way, and if he were to apply Rescare, he would have held that s 117(1) did not apply to the Territory’s assumed supply of timber, because ACOC’s use of the timber did not infringe the patent. But his Honour did not say what, on the same assumptions, he would have held had he decided to adopt what had been said in Bristol-Myers. He simply recorded at [23] the Territory’s contention that it was the trees or timber that was supplied to ACOC, but the product used by ACOC was not the trees or the timber but the selected bark and wood from the timber.

175 It is not necessary for us to express a preference in relation to the approaches adopted in Rescare and Bristol-Myers. That is because the submission based on Rescare is directed to whether ACOC has infringed the patent. That enquiry is outside the scope of the separate questions. We will explain why.

176 The appellants’ statement of claim alleges that ACOC used the timber acquired from the Territory to produce a blue coloured oil by means of a process protected by the patent, and has sold and offered it for sale within Australia. The Territory does not admit the allegation. It also puts in issue the validity of the patent.

177 The first of the issues in the separate question is whether the Territory had supplied a product to ACOC its use of which would infringe the patent. The ambit of the question was squarely raised at the beginning of argument before the primary judge. Counsel for the Territory said:

‘And it’s those last words, "the use of which would infringe the patent", which I wish to raise now, because plainly ... the determination of that part of the question would involve questions of ultimate or primary infringement by ACOC and we would simply wish to clarify that that would not be a matter that your Honour could determine today, there being no evidence of end use by ACOC in any event.’

HIS HONOUR: So the emphasis is on the question of supply?

MS GODDARD: The question, we say, is on the question of supply, on the question of what is the product supplied and whether or not that product is a staple commercial product ....
...
And its those ultimate questions which we wish to make pellucidly clear, including the question of end use or primary infringement by ACOC that are not in issue today.

HIS HONOUR: Yes. All right ....’

178 In his reasons, immediately after setting out the separate questions, the primary judge said:

‘That order was made to address the alleged contributory infringement of the patent by the Territory without extending the hearing into issues as to the validity of the patent, and its infringement by ACOC. As I have said, for present purposes I have assumed the validity of the patent, and that ACOC’s alleged actions have infringed it.’

CONCLUSION

179 Having regard to our above conclusions, the orders made by the primary judge should be set aside and the matter remitted to his Honour to be further heard and determined in the light of these reasons for judgment.

I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Branson and Sundberg.

Associate:
Dated: 20 September 2007

	The applicants appeared in person

Counsel for the Respondent:	Mr M Grant and Ms A Cameron

Solicitor for the Respondent:	Clayton Utz

Date of Hearing:	24 May 2007

Date of Judgment:	20 September 2007

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