Patent Protection and the Problem of Secret Prior Use

In general terms, secret use arises when the patentee has secretly used the invention prior to the priority date. One of the problems that arises when examining the meaning of ‘secret use’ under the Patent Act 1990 (Cth) (“the Act”) is that the term ‘use’ is not defined. This has left it open to the Courts to determine the definition of this term. As seen in Azuko Pty v Old Digger Pty Ltd¹⁾ (“Azuko”) the definition of the term ‘use’ has an important bearing on any decision involving the provisions relating to ‘secret use’. It appears that the law in this area is far from being settled, with the Azuko decision being the subject of some debate, despite leave to appeal the matter being denied by the High Court.

Secret use offends the principle that patent monopoly is granted in return for disclosure of the invention²⁾. A period of secret use prior to the patent’s monopoly period commencing would give the patentee an effective monopoly period longer than that allowed under the Act by virtue of the fact that the period of secret use is in itself a period of monopoly use³⁾.

The question of whether such a de facto extension of the patent monopoly arises is a key question to be answered is assessing whether there has been secret use under s18(1)(d)⁴⁾. For example, it has been held that the mere receipt of an unsolicited order will not be deemed to be secret use⁵⁾.

Morgan v Seaward⁶⁾ is one of the earliest cases that looked at the area that has developed as the doctrine of secret use. Parke B stated that “if an inventor could sell his invention, keeping the secret to himself, and, when it was likely to be discovered by another, take out a patent, he might have, practically, a monopoly for a much longer period than fourteen years”.

Under the Patents Act 1990/ (“the Act”), an invention is not patentable for the purposes of a standard patent⁷⁾ or an innovation patent⁸⁾ if the invention, so far as claimed in any claim was secretly used in the patent area⁹⁾ before the priority date¹⁰⁾ of that claim by, or on behalf of, or with the authority of, the patentee or nominated person or the patentee’s or nominated person’s predecessor in title to the invention.

There is provision in the Act¹¹⁾ of a list of acts that are not taken to be ‘secret use’. These acts include:

• Reasonable trial or experiment¹²⁾;
• Use solely in the course of a confidential disclosure of the invention¹³⁾;
• Use for any other purpose other than the purpose of trade or commerce¹⁴⁾; and
• Use of the invention by or on behalf of the Commonwealth, a State, or a Territory where the invention has been disclosed to the Commonwealth, State, or Territory¹⁵⁾.

In order for a patent not to be revoked on the basis of secret use before the priority date, the use must be exempted under s9¹⁶⁾.

In the Azuko matter, Old Digger sought to rely on the exemption in s9(a), namely that its use had been for the purpose of ‘reasonable trial or experiment’.

Old Digger Pty Ltd originally commenced proceedings against Azuko Pty Ltd¹⁷⁾ alleging, amongst other things, that Azuko had infringed two of Old Digger’s patents relating to percussive hammers used in drilling equipment used for exploratory purposes in the mining industry. Azuko denied infringement and counterclaimed for revocation of one of the patents (“the Giehl patent”) claiming, amongst other things that there had been disqualifying secret use by the inventor, Mr Giehl, prior to the priority date.

At first instance¹⁸⁾, von Doussa J found that Mr Giehl had tested a prototype of his invention at the mining site being worked by a company owned by Mr Gaden, a friend and business associate of Mr Giehl’s. Mr Gaden gave Mr Giehl an unsolicited order for five or six hammers in the month before the priority date. By the priority date, Mr Giehl had made 15 to 20 hammers, and at least some of those were made after Mr Gaden’s order had been received.

Mr Giehl conceded that the hammers had been made with the intention of selling them after the priority date and Azuko alleged that their manufacture before the priority date was a secret use which prevented the Giehl patent from being patentable.

Von Doussa J found that there had not been a commercial use of the invention and that the use of the invention had been confidential, therefore a case for revocation on the ground of secret use was not made out. Von Doussa J’s findings therefore included the conclusion that that there had been use and that the use had been secret.

On appeal to the Full Court¹⁹⁾, the majority (Beaumont and Gyles JJ, Heerey J dissenting) held that the Giehl patent had not been used before the priority date for the purposes of s18(1)(d) of the Act.

Azuko’s application to the High Court for leave to appeal on both the alleged infringement and secret use issues was denied.

The main difference between the judgments of Gyles J, with whom Beaumont J agreed, and Heerey J centered around the word “used” which appears in s18(1)(d)²⁰⁾ and the definition of that word. Section 9(c)²¹⁾ limits the meaning by excluding use that is not for the purpose of trade or commerce. This leaves open a large scope for commercial use that may be caught by the term ‘secret use’.

Gyles J, in contrast to the primary judge, found that Mr Giehl’s manufacture of the hammers was not a ‘use’ of the invention as he had not obtained a commercial benefit from what was done before the priority date and therefore had not obtained an extension to the monopoly period through secret use.

In his reasons, Gyles J distinguished between process and product claims and expressly stated that “the manufacturing of goods is not … commercial use of those goods”²²⁾. He therefore held that the making of hammers before the priority date did not constitute secret use because it was not commercial use.

Heerey J dissented on this point and held²³⁾ that for the purposes of s18(1)(d)²⁴⁾, the word ‘use’ should be synonymous with the word ‘exploit’, as defined in the Act²⁵⁾ and stated that “the word “use” has a long history as a succinct label for the various ways in which practical benefit may be obtained from an invention”²⁶⁾.

His Honour went on to say that “if someone else had been a patentee of the Giehl patent and it had been granted in March 1990 [a month before the priority date in this case], … Mr Giehl's manufacture of 15 or 20 hammers [would have been] an infringement of such patent”²⁷⁾. Therefore, Heerey J considered manufacturing the hammers to be ‘use’ of the invention.

There is no definition for ‘use’ or ‘used’ in the Act and it seems that they should be given their usual meaning²⁸⁾, both in the context of secret use and novelty.

Guidance on this issue comes primarily from English case law. It was considered by the Court of Appeal in Re Wheatley’s Patent Application²⁹⁾. It was held that the word ‘used’ in the English Act did not mean publicly used or commercially used. In coming to this decision, the Court chose not to consider cases decided prior to the 1949 amendments to the Patents Act³⁰⁾.

However, in an earlier House of Lords decision in Bristol-Myers Co (Johnson’s) Application³¹⁾, Lord Diplock said that it was legitimate to consider the cases predating the Patents Act 1949 (UK) in relation to the issue of prior use as the 1932 and the 1949 amendments to patent legislation were, amongst other things, seeking to codify the case law regarding the grounds of invalidity available by an action for scire facias³²⁾.

The wording of the Australian legislation encourages the courts to take into account the common law and therefore the case law regarding what constitutes ‘use’ is still relevant³³⁾.

Heerey J’s approach, which draws on the above mentioned English case law for assistance³⁴⁾, is in line with the Patents and Designs Act 1932 (UK), which referred to an invention being “worked on a commercial scale”, which was defined as the manufacture of an article or the carrying on of a process.

The term “secretly worked on a commercial scale” was replaced in the Patents Act 1949 (UK) by the phrase “secretly used” and this formulation was adopted by the Patents Act 1952³⁵⁾(Cth) and remains in the current Patents Act³⁶⁾.

The view adopted by Gyles J is similar to the rational behind the provisions of the US patent legislation³⁷⁾ in that the inventor is given sufficient time to perfect the invention and determine whether or not it is worth pursuing³⁸⁾ prior to the priority date. The US case law³⁹⁾ also supports the view that if your secret use of an invention does not allow you to gain a competitive advantage over others, you have not extended the period of your monopoly.

However, there seems to be no justification for the distinction drawn by Gyles J between process and product claims when you look at the way in which the term “secretly used” came to be in the Patents Act⁴⁰⁾. It would seem preferable to maintain a test for secret use that could be applied to any invention so that the protection and regulation of both process and product claims remain consistent. There seems no policy or practical reason to differentiate claims on the basis proposed by Gyles J in circumstances where the legislation makes no such distinction. However, as the majority decision is the only case in this field, the differentiation between process and product claims may be an important consideration until this test is overruled.

If you find that Mr Giehl’s manufacture of hammers prior to the priority date was not secret use, it is difficult to say how you would seek to distinguish between his use and use by a patentee to manufacture and stockpile an article prior to filing for a patent. In reality, that is the end effect of Mr Gielhl’s behaviour. As stated earlier, he admitted that he had made the hammers with the intention of selling them after the priority date. That meant he was able to enhance the benefit he obtained during the period immediately after disclosing his invention, during which his competitors could not realistically take advantage of the information made public. Mr Giehl obtained this benefit by having hammers available for immediate sale to consumers that provided a technological advance over those of his competitors.

Having said that, Gyles J was influenced by the evidence of the parties and the findings of fact at first instance⁴¹⁾. He accepted the submission that the order received by Mr Giehl was unsolicited and was not accepted until after the priority date. In addition the fact that the order was made by a party involved in the testing of the prototype is likely to have some relevance in relation to the exceptions provided for treasonable trial and experiment⁴²⁾ and confidential disclosure⁴³⁾. The test his Honour proposed may not have been formulated in different factual scenarios.

If the view of Gyles J is adopted, the Court may be required to draw an artificial distinction based on quantity to distinguish use of Mr Giehl’s sort and unacceptably large stockpiling. This can only add further uncertainty and expense for parties litigating in this area by requiring an analysis on a case by case basis, probably involving extensive economic evidence as to, for example, the size of the relevant market.

An example of such a need for further information arose when in his submissions before the High Court⁴⁴⁾ Mr Caine stated that the vice that secret use is directed toward was clearly identified by Gyles J as being an undue prolongation of the monopoly. He proposed that the test that Gyles J had laid down is a workable and a sensible one and one that can guide other courts in the application of the principles in relation to secret use. In response, Gummow J asked how many hammers Mr Giehl had made in comparison with the overall market. Mr Caine was unable to provide that information to the Court.

If the answer to the question of whether secret use of the invention has occurred relies on data such as the ratio of the numbers produced as compared to the size of the market for such goods, there can be no definitive answer to fit all cases. Whereas if you use Heerey J’s analysis, which centers on ‘use’ being defined as the manufacture of an article or the carrying on of a process, you can have a global test.

However, if you adopt Heerey J’s interpretation, you end up with the rather harsh consequence that secret use will be considered to be “a free-standing ground of invalidity. As with novelty, one instance is sufficient, no matter how close to the priority date it occurs⁴⁵⁾”.

The Australian statute, as with European patent law⁴⁶⁾, does not have the flexibility of the US equivalent, which specifies a permissible period for prior secret use. That means that there will be a drastic consequence for a potentially short period of prolongation of the monopoly period. This may adversely affect objectives of patent protection, such as providing an incentive for ingenuity⁴⁷⁾.

It is an aim of patent law is to encourage the early filing of patent applications and therefore timely public disclosure of useful inventions. This is unlikely to occur the more complicated this process becomes.

Under the current Act in Australia, potential patentees need to have certainty about what they can and cannot do before the priority date. If the answer is, as under Heerey J’s test, that they can do very little, this will encourage them to file their application as soon as possible to enable them to use their invention and not run the risk of later revocation due to secret prior use.

Heerey J’s position is justifiable from many approaches to the issue:

1. If you use a version of the reverse infringement test laid down in earlier cases and ask “if someone else had been a patentee of the Giehl patent and it had been granted in March 1990, would Mr Giehl's manufacture of 15 or 20 hammers be an infringement of such patent”, the answer is yes⁴⁸⁾.
2. If you ask whether Mr Giehl made the fifteen to twenty hammers because he proposed to sell them, including some five or six to Mr Gaden to fill an order already received, does this have a distinctly commercial look about it, the answer is yes⁴⁹⁾.
3. If you ask on the priority date did Mr Giehl had fifteen or twenty hammers ready for sale and delivery and thus obtain an immediate advantage over his competitors, who could not lawfully copy his product, the answer is yes⁵⁰⁾.

The test as laid down by Gyles J permits a use of the invention which, in circumstances where the element of secrecy was not in dispute, should have been proscribed as secret use before the priority date of the patent within the meaning of s 18(1)(d)⁵¹⁾. It appears that this has, in effect, extended the benefits of a de facto monopoly period for Mr Giehl.

The judgment in Azuko does not give an explanation as to why Mr Giehl delayed in filing his patent application, nor does it explain why Mr Giehl could not wait until after the priority date to commence manufacturing the hammers. Had his proposed manufacturing of the hammers been clearly within the definition of secret prior use, he may have filed his patent earlier.

The aim of encouraging early public disclosure of inventions has since the Azuko decision, been given greater strength due to amendment to the patent regulations in 2002. Regulation 2.2(1A) allows a general grace period of 12 months, therefore information disclosed in a pre-filing publication or public use of the invention within 12 months prior to a patent application being filed, will not affect the novelty of a patent⁵²⁾.

Heerey J’s test, which discourages secret use, seems to be more in line with this recent development than the test as proposed by Gyles J in Azuko.

Gyles J’s test seems to encourage a position similar to that under trade secrecy laws in which during the period before filing a patent application, which may be extended by permitting use of the invention as seen in the Azuko matter, the technical advance of the invention is only known by a few and cannot be used or taken further by other traders, therefore competition is not enhanced⁵³⁾.

Azuko v Old Digger⁵⁴⁾ was the first Australian analysis by the Court of the concept of revocation for prior secret use. Due to the differing views as to whether the decision of Heerey J (in dissent) or the majority should be preferred, it is likely that this decision and in particular, the question of whether manufacturing of goods amounts to commercial use of the goods, together with the more general findings in respect of the term ‘use’ will be revisited, when a similar matter is next before the Court.

Alternatively, this issue may require further review in light if there are future amendments to International Treaties that seek to harmonise the concept of secret use.

However, until the majority’s view in Azuko⁵⁵⁾ is overturned, their decision remains binding on trial judges in the Federal Court and on the Full Federal Court.

SARAH PIKE
WHITE SW COMPUTER LAW
JUNE 2006

www.computerlaw.com.au © White SW Computer Law 2006 This paper is a guide only and should not be used as a substitute for legal advice, readers should make their own enquiries and seek appropriate legal advice.