Gray Decision now Black and White

The decision of the Full Court of the Federal Court of Australia in University of Western Australia v Gray [2009] FCAFC 116 (3 September 2009) in substance marks the end of the road for the University of Western Australia in its five year struggle to wrest the fruits of Dr Bruce Gray’s innovative and patented liver cancer treatments from Sirtex Medical Limited and Dr Gray. 

The technical possibility of an application for special leave to appeal to the High Court – said by Vice Chancellor Alan Robson of UWA to be under consideration – merely delays the inevitable.  The conclusive rejection of UWA’s appeal makes it unlikely in the extreme that UWA will be able to demonstrate to the High Court that it has any realistic prospect of success on appeal if leave were granted.  It may try to obtain leave but it is unlikely to be granted leave.

The emphatic rejection of UWA’s appeal was profound.  UWA appealed against virtually every finding made by Justice Robert French (now Chief Justice of the High Court of Australia) at first instance.  Their 43 grounds of appeal were each systematically analysed and rejected by the Full Court. 

The Full Court itself was an impressive assembly of senior judges with expertise in the areas the subject of the appeal.  Justices Keith Lindgren and Annabelle Bennett were two of the three members of the Federal Court Full Court that delivered judgment in Polwood Pty Ltd v Foxworth Pty Ltd (2008) 165 FCR 527 upon which UWA pinned most of its patent argument.  Justice Paul Finn, a distinguished academic before his appointment to the Federal Court, was formerly Professor of Law at the Research School of Social Sciences at ANU.  Prior to his appointment to the Federal Court in 1995, Justice Finn published regularly in the area of fiduciary obligations, itself a supposed cornerstone in UWA’s attack on Dr Gray.

It is to be recalled that UWA on appeal abandoned its claims against Sirtex Medical Limited and thus its claims for ownership of the suite of patents.  It concentrated however, on its claim for damages against Dr Bruce Gray, claiming ownership of his substantial shareholding in Sirtex (itself said to be worth between $60 and $70 million).

To succeed in its appeal, the University was obliged to show:

  1. that it had property rights or interests in the patented technology; and

  2. as a matter of fact, the patented technology was created or developed by Dr Gray whilst he was employed by UWA.

At trial it had been unnecessary for Justice French to deal with many of the defences put up by Dr Gray.  These included claims that UWA claimed causes of action were statute barred, claims that equitable relief should be disallowed on the grounds of knowing delay and various estoppel claims.  These were raised by Dr Gray in a notice of contention before the Court of Appeal.  As with the trial judge, the Court of Appeal, having concluded that UWA’s appeal should be comprehensively dismissed found it unnecessary to deal with the notice of contention.

Accordingly, any application for special leave to appeal to the High Court by UWA will not only have to address the rejection of its arguments by four senior judges in the Federal Court (one of whom is now the Chief Justice of the High Court) but also the fact that the comprehensive defeat made it unnecessary for any Court prior to the High Court to deal with substantive issues raised by way of defence in respect of which the High Court will have no assistance by any trial judge or intermediate Full Court analysis of facts and law relevant to those defences.  It is likely that the High Court will not wish to embark upon a detailed analysis of these issues as part and parcel of hearing any appeal.

The Full Court decision

The Full Court significantly drew attention to the precise way in which the University advanced its claims against Dr Gray at trial and on appeal.  Effectively, the Full Court’s observations marginalise the precedent significance of UWA’s failure – perhaps leaving a way open for other Universities in Australia to mount a similar claim in a more effective manner. 

The Full Court commented that the claims against Dr Gray ‘evolved in an unusual fashion’ [84].  It pointed out that the implied contractual term said to be the basis of the primary claims prosecuted by the UWA was provided in a precise formulation ‘only on the third day of hearing of the appeal’ [85].  Significantly, the claim of breach of fiduciary duty was described by the Court as ‘quite problematic’ [90]. 

At no point did UWA rely upon a term implied in fact as founding its rights to the inventions [93].  The Court of Appeal recorded that on day 44 of the first instance trial UWA attempted for the first time to plead as an implied term of Dr Gray’s employment contract that he owed UWA a duty of good faith and fidelity.  They commented ‘UWA’s attempt at resuscitation of this implied duty was abandoned during the hearing of the appeal’ [92].  They recorded that UWA did not seek to found a case on any alleged breach of confidence nor to assert that Dr Gray owed a duty of confidence to UWA.  It limited its fiduciary claim for misuse of property rights and not of misappropriating an ‘opportunity’ offered to UWA (being the basis of a successful university claim made in Victoria at the University of Technology v Wilson (2004) 60 IPR 392).  The Court commented:

‘We have emphasised… what this proceeding is not about, not to suggest that, differently pleaded, it may have had greater prospects of success (on which we express no view) but to indicate how narrow and in a sense contrived is the basis upon which this aspect of the matter has been fought and is to be decided’.

At trial UWA had sought to found its property rights and inventions upon Patent Regulations approved by the UWA senate in 1971, replaced by Intellectual Property Regulations in 1976.  Although the UWA appealed against French J’s conclusions on the IP regulations it abandoned that ground at the hearing of the appeal [97].  The attack on French J’s findings on the patent regulations – and the failure of the University to maintain the patent committee mechanism was rejected by the Court who observed in passing however that the patent regulation controversy was a ‘distraction’ [119].  One finding of the trial judge not contested on appeal was that the patent regulations could not validly appropriate property to UWA which didn’t belong to it.  In the absence of a contest on this aspect, the other issues concerning the patent regulations fell away [119].

The primary argument advanced by UWA both at trial and on appeal was that there was to be implied as a matter of law a contractual duty on Dr Gray.  UWA accepted both at trial and on appeal there was no express or implied contractual obligation on Dr Gray of a ‘duty to invent’ [124].

The implication of terms in law

The Full Court identified that terms implied in fact are ‘individualised gap fillers depending on the terms and circumstances of a particular contract’.  Terms implied at law are:

‘In reality incidents attached to standardised contractual relationships, or perhaps more illuminatingly, such terms can in modern US terminology be described as standardised default laws’.

To imply a term of law, the Court held the matters that need to be considered are:

  1. the requirement that there be a recognised or commonly occurring class type of kind of contract; and

  2. the test to be satisfied if the implication is to be made.

The implication requires a justification greater than merely that of reasonableness.  The test most commonly stated or asserted is that of necessity.  In considering this, the Court takes into account general questions of policy which the Full Court in UWA v Gray said played an important part in dissuading the Court from allowing that aspect of appeal and from making the implication sought [146].

Significantly, for the purpose of general application of the Full Court’s decision, the Full Court recorded that the University argued that there was no relevant distinction between a University as an employer and any other employer and further that Dr Gray’s contractual duty to undertake research was in the circumstances sufficient to bring it within the class of contract in attracting the implied term [181]. 

The Full Court disagreed with both contentions finding that there was a distinctiveness of Universities as an employer that separated them from general commercial organisations [182-205].  The Court drew attention to the collateral impact that a duty to invent would have.  It would need to be underpinned by a duty not to make an unauthorised use or disclosure of confidential information.  If it wasn’t underpinned by a duty of confidence then the employee could destroy the potential patent ability of an invention by progressively putting researched results into the public domain.  The impact of a duty of confidentiality would impair academic collaboration, restrict academic staff mobility, and prohibit publication. 

The Court commented the employee invention implied term is a particularly blunt instrument to settle the ownership of employee inventions’ when one has regard to the nature and public purposes of Universities and the distinctiveness of academic employment in Universities focusing on the freedom to publish and the need to collaborate with external institutions.  There was no necessity to imply a term of that into a particular class or type of contract of academic employment.  The Court held:

‘We would also add that while our conclusion recognises a distinction between the ownership of employee inventions in Universities and in private sector business entities, we should not be taken as suggesting that the solution reached by use of the implied term in law is necessarily a desirable one in either case.  What we do emphasise is that there are clear reasons for not implying such a term as to inventions in a case such as this.  If a less crude and more fair and reasonable result is to be achieved which balances the respective interests of a University and its academic staff members, this will need to be done by or under legislation or, if it could be devised, by an express contractual regime appropriate to the circumstances of the individual case’.

The balance of the Full Court decision dealt with the attack on Justice French’s findings of fact and analysis of the individual patents.  The Full Court commented ‘UWA’s submissions on appeal with respect to these grounds bear little resemblance to, and in many respects are inconsistent with, the case that it advanced at trial’ [227].  It commented that UWA’s submissions make assertions of facts that UWA alleged should have been found by Justice French ‘without in any way addressing the facts found by [Justice French] with which the proposed findings are inconsistent’.  Accordingly its approach was inconsistent with ‘its obligation to demonstrate some error by His Honour as to a legal factual or discretionary matter.  Mere assertion of error and a submission that different facts should have been found do not, without more, discharge this obligation’ [231]. 

Against this criticism, it is to be doubted that the High Court will entertain a detailed review of the first instance evidence.

Conclusion

Despite the trenchant criticism expressed by the Full Court as to the distinctive way in which UWA prosecuted its case at trial and on appeal (carrying with it the suggestion that a differently argued case may have enjoyed different prospects of success about which the Full Court did not express any opinion) it is now clear that an attempt to imply a term as a matter of law into an academic contract that the ownership of inventions vest in the academic institution is likely to fail. 

The position has broad ramifications for Universities in Australia that have operated on a completely different assumption.  Unless these matters are covered by carefully devised contracts dealing with the individual circumstances of each case, the blanket attempt by academic institutions to claim the benefit of inventions made by their staff will need to be significantly reviewed. 

For the University of Western Australia, now facing multimillion dollar costs claims from Sirtex Medical Limited and Dr Gray and the potential for extensive liability on the undertaking as to damages it gave both at trial and on appeal to support an injunction freezing Dr Gray’s substantial shareholding, the litigation has been a comprehensive commercial disaster. 

The fact that it has jeopardised the balance of the University’s intellectual property portfolio adds to the enormity of the disaster. 

Professor Robson was quoted in the media as saying that the University was obliged as a matter of ‘principle’ to conduct the case.  Professor Robson’s remarks are at odds with the finding both of Justice French and of the Appeal Court that the University of Western Australia then Pro-Vice Chancellor (Research) Professor Michael Barber in 2000 gave consideration to the making of a claim and concluded that the risks of legal action were not outweighed by the likely benefits of it.  The judgement of Professor Barber in 2000 – not to pursue litigation for that reason – has been demonstrated to be entirely correct.

Lavan Legal Counsel Martin Bennett and Iain Freeman appeared at trial and on appeal for Dr Gray who was represented by Lavan Legal.

If you have any further queries please contact Iain Freeman on (08) 9288 6759 / iain.freeman@lavanlegal.com.au.