Missing the Boat: NZ Court of Appeal Finds Delayed Patent Claims an Abuse of Process

Anura Limited (Formerly Orion Marine Limited) v Sealegs International Limited [2024] NZCA 538

Highlight

The New Zealand Court of Appeal has handed down its second appeal decision in the long-running dispute between Sealegs International Limited (Sealegs) and Anura Limited (formerly Orion Marine Limited) and Smuggler Marine Limited (together, the Appellants).  The Appellants sought damages under an undertaking given by Sealegs in 2016 when it obtained an interim injunction before the trial of its claims that the Appellants were infringing copyright in works relating to amphibious boat technology.   Sealegs’ copyright infringement action ultimately failed.  Sealegs attempted to defend the Appellants’ damages claim by alleging that any sales prevented by the injunction would have been unlawful patent infringement.  The Court of Appeal has now ruled that this attempt constitutes an abuse of process in accordance with the principles in Henderson v Henderson [1843] EngR 917.

Background

In 2016, Sealegs sued the Appellants alleging infringement of copyright in the amphibious boat systems that Orion was making and supplying, and that Smuggler was attaching to its boats.  Sealegs obtained an interim injunction and gave an undertaking as to damages.

While Sealegs initially indicated that it would also commence a patent infringement claim, it ultimately did not after being given a June 2017 deadline to do so.  Sealegs succeeded in its copyright claim in the High Court, but the Court of Appeal overturned this decision.  That Court noted that “Sealegs had decided not to add a patent claim but to pursue a ‘simpler’ copyright infringement, leaving the patent to be relied on in the United States and other jurisdictions should litigation arise there”.

In 2020, the Appellants sought to enforce Sealegs’ undertaking as to damages.  Sealegs filed a defence and counterclaim alleging patent infringement.  The Appellants applied to strike out the patent claims, arguing they should have been brought with the original copyright infringement case and constituted an abuse of process under the Henderson v Henderson principle.  The High Court declined the strike-out application and the Appellants appealed.

Key Issues 

The Appellants argued that Sealegs could and should have raised its claim for patent infringement in the earlier proceedings and should therefore be prevented from raising that claim in this subsequent proceeding.  They submitted that the High Court judge (the Primary Judge) “lost sight of the abuse with which the [Henderson v Henderson] principle is concerned, incorrectly formulated the relevant test, and adopted a too restrictive approach”.

Sealegs supported the Primary Judge’s finding.  It also submitted that because it could “technically” have made a patent claim earlier, this did not mean that a patent claim “could have been brought”.  Sealegs argued that the proper question arising out of Henderson v Henderson was whether a patent claim could “practically” have been brought.

Having distilled the parties’ submissions, the Court of Appeal noted the following issues to be considered:

(i) Could Sealegs have brought, in (or with) the earlier proceeding, its current patent claim?

(ii) Should Sealegs have brought its current patent claim in (or with) the earlier proceeding, such that it is an abuse of process for it to now bring the claim?

(iii) If it is an abuse of process for Sealegs to bring its current patent claim for infringement, may Sealegs nonetheless raise patent infringement by way of defence?

Could Sealegs have brought, in (or with) the earlier proceeding, its current patent claim?

The court examined two distinct aspects of this issue – (i) the original amphibious systems and boats; and (ii) a later model of boat.

For the original amphibious systems and boats, Sealegs conceded that it technically could have included the patent claims, but argued practical barriers prevented this for two reasons.  First, adding a patent claim would have delayed the trial.  Second, the patent was under amendment at the time.  The Court dismissed these arguments as “rather arid”, finding that such practical difficulties were relevant to whether Sealegs “should” have brought the claims, not whether it “could” have done so.

The newer boat model had been developed after the original trial so could not have been specifically the subject of a patent claim.  There was a factual dispute as to whether that model was so similar to the model considered at trial that its infringing status would have been determined anyway.  The Court held that this factual dispute could not be resolved in a strike-out application, meaning the appeal had to fail to the extent it related to the new model, leaving this aspect of the counterclaim to be determined at trial.

Should Sealegs have brought its current patent claim in (or with) the earlier proceeding, such that it is an abuse of process for it to now bring the claim?

The Court first determined that both the copyright and patent claims fundamentally concerned the same subject matter – they involved the same parties, the same amphibious systems, the same boats, and the same conduct by the Appellants.

Sealegs argued that different legal elements were involved in patent claims as apart from copyright claims.  The Court rejected the significance of this distinction, noting that both claims were different ways of alleging the Appellants had breached Sealegs’ legal rights.  Citing Wigram V-C in Henderson v Henderson, the Court concluded that the two claims were clearly parts of “the same subject of litigation”.  The Court noted that if Sealegs’ submissions were accepted, this would confine abuse of process to cases “where the causes of action were the same or had the same elements (and therefore raised the same issues)”.  The Court observed that this would make the abuse of process principle redundant beyond cause of action estoppel and issue estoppel, contrary to the authorities considered.

The Court also rejected Sealegs’ argument that the absence of a “collateral attack” on the earlier copyright ruling should weigh against finding an abuse of process.  The Court found that the Primary Judge had erred to this extent (who had weighed this heavily), observing that a “collateral attack” refers specifically to challenging prior findings in proceedings between different parties or of a different nature.  The Henderson v Henderson principle, the Court clarified, extends beyond just preventing “collateral attacks”, making the absence of such an attack merely a neutral factor in determining abuse of process.

The Court was particularly critical of Sealegs’ position that it could not practically include the patent claims due to timing constraints which would have, according to Sealegs, resulted in a significant adjournment of the trial date.  Initially, Sealegs had indicated that it would bring patent claims and estimated a 4-6 week trial including both copyright and patent matters.  The Court concluded that Sealegs would have been prepared for a combined copyright and patent trial commencing in September 2017.  It also noted that after obtaining the interim injunction, Sealegs delayed pursuing even the copyright claims and changed its mind about including patent claims without consulting the Court or the Appellants.  Had it done so, the Court found that a longer trial could have been accommodated if needed.  This conduct was particularly problematic given that Sealegs had obtained an interim injunction.

The Court found other defences raised by Sealegs to be either unconvincing or neutral factors.  Ultimately, the Court concluded that Sealegs should have brought its patent claims with the earlier proceeding.  Accordingly, raising them in a later proceeding constituted an abuse of process and was “oppressive and wasteful of scarce judicial resources”.

If it is an abuse of process for Sealegs to bring its current patent claim for infringement, may Sealegs nonetheless raise patent infringement by way of defence?

Sealegs argued that striking out a defence was more extreme than preventing a party from enforcing its patent and suggested that the Henderson v Henderson principle should be applied more leniently to defences.  However, the Court found this argument unsupported by legal authority and inconsistent with both the Henderson v Henderson principle as well as the related principle of issue estoppel, which prevents re-litigation regardless of whether a party is acting as plaintiff or defendant.

The Court acknowledged that the way a matter is re-litigated (e.g. as a defence rather than a claim) might be relevant to the broader assessment called for by Henderson v Henderson, but it found this consideration was offset by the fact that Sealegs’ defence related to a claim arising solely from its own decision to obtain an interim injunction in the very proceeding that gave rise to the abuse of process with which the Henderson v Henderson principle is concerned.  Consequently, the Court concluded that it was equally abusive for Sealegs to raise patent infringement as a defence.

Outcome

The Court ordered that Sealegs’ counterclaim be struck out, except to the extent that it related to the alleged sales of the newer boat model.

Implications

This decision underscores the crucial importance of carefully strategising litigation proceedings when holding multiple IP rights.  While it is common for businesses to have overlapping IP protections (such as patents, copyright, and designs), this decision demonstrates the risks of attempting to litigate these rights separately.  The Court showed little sympathy for Sealegs’ arguments, especially regarding the alleged timing constraints.

Perhaps the most sobering aspect of this case is its timeline, with the dispute now stretching over 8 years and the damages claim yet to be heard.  The Appellants, despite ultimately succeeding, have suffered the very prejudice and disruption that the Henderson v Henderson principle seeks to prevent.  Parties must carefully weigh the immediate and strategic advantages of separating or excluding claims against the risk of being prevented from raising them later, and the potential for dramatically extending the over timeline of the dispute.

About Pearce IP

Pearce IP is a boutique firm offering intellectual property specialist lawyers, patent attorneys and trade mark attorneys to the life sciences industries (in particular, pharmaceutical, biopharmaceutical, biotech, ag-tech and food tech).  Pearce IP is the 2021 ‘Intellectual Property Team of the Year’ (Lawyers Weekly Australian Law Awards) and was shortlisted for the same award in 2022.  Pearce IP is ranked in IAM Patent 1000 and Managing IP (MIP) IP Stars, in Australasian Lawyer 5 Star Awards as a ‘5 Star’ firm, and the Legal 500 APAC Guide for Intellectual Property.

Our leaders have been recognised in virtually every notable IP listing for their legal, patent and trade mark excellence including: IAM Patent 1000, IAM Strategy 300, MIP IP Stars, Doyles Guide, WIPR Leaders, 5 Star IP Lawyers, Best Lawyers, and Australasian Lawyer 5 Star Awards, and have been honoured with many awards including Australian Law Awards – IP Partner of the Year, Women in Law Awards – Partner of the Year, Women in Business Law Awards - Patent Lawyer of the Year (Asia Pacific), Most Influential Lawyers (Changemaker), among other awards.