INVERNESS MEDICAL SWITZERLAND GMBH V MDS DIAGNOSTICS LIMITED AND ANOR HC AK CIV 2007-404-748

INVERNESS MEDICAL SWITZERLAND GMBH V MDS DIAGNOSTICS LIMITED AND ANOR HC AK CIV 2007-404-748 19 June 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY COMMERCIAL LIST CIV 2007-404-748BETWEEN INVERNESS MEDICAL SWITZERLAND GMBH Plaintiff AND MDS DIAGNOSTICS LIMITED First Defendant AND PRAKASH APPANNA Second Defendant Hearing: 6 June 2008 Counsel: CL Elliott for Plaintiff TJ Walker and NM Alley for Defendants Judgment: 19 June 2008 at 12.00 noonJUDGMENT OF RODNEY HANSEN JThis judgment was delivered by me on 19 June 2008 at 12 noon, pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar Date: .Solicitors: Tony Oxnevad, P O Box 722, Queenstown for Plaintiff Simpson Grierson, Private Bag 92518, Auckland for Defendants[1] The plaintiff (IMS) is a Swiss company which manufactures and distributes medical testing devices worldwide. Among the devices it sells in New Zealand are pregnancy test kits. [2] The first defendant (MDS) imports and distributes medical devices to the New Zealand market. Dr Appanna is its managing director. [3] In this proceeding IMS claims it is the owner of various copyright works relating to its pregnancy test kits. It alleges that the pregnancy test kits imported and sold by the defendants are the same as those exported to New Zealand by IMS and infringe IMS's copyright. [4] IMS applies to join its parent company, Inverness Medical Innovations, Inc (IMI) as an additional plaintiff on the ground that IMI (not IMS) is the owner of some of the copyright works in issue and has other contractual and intellectual property rights which it can properly assert against the defendants. [5] The defendants oppose joinder, contending: a) The application for joinder is an attempt to substitute the proper plaintiff (IMI) for the current plaintiff (IMS) which has no basis to claim an infringement of copyright. b) The joinder of IMS is not necessary to enable the Court effectually and completely to adjudicate upon and settle all questions involved in the proceeding. c) Even if there is jurisdiction for the joinder of IMI, the Court's discretion should be exercised against joinder, having regard to the delay in bringing the application and serious deficiencies in the plaintiff's pleadings.[6] For the defendants, it is submitted that the appropriate course is for the present proceeding to be discontinued and fresh proceedings issued by IMI.The current pleading[7] The current pleading is an amended statement of claim filed on 19 November 2007. It claims IMS is the owner of copyright works in two pregnancy testing kits, viz: a) A card-type device. Copyright works are said to comprise sketches, drawings and prototypes made by employees of Unilever plc which assigned all its intellectual property, including copyright, in the card- type devices to IMS. b) A range of devices comprising two main variants, referred to in argument as midstream devices. Copyright works are said to comprise sketches, drawings and prototypes made by an employee of Acon Biotech (Hangzhou) Co. (Acon) which assigned all its intellectual property rights, including copyright, to IMS. [8] IMS claims that MDS (with the authority and encouragement of Mr Appanna) imported into New Zealand products copied or substantially copied from the copyright works.Proposed new pleading[9] The proposed new claim, to which IMI would be added as plaintiff, is set out in a draft second amended statement of claim. It significantly expands the existing pleading and corrects some fundamental errors in the earlier statements of claim. In particular, it is now said that the earlier allegation that intellectual property rights were assigned by Unilever and Acon to IMS was made in error. The assignments were to IMI.[10] The second amended statement of claim pleads that the pregnancy test kits and associated materials marketed in New Zealand by IMI and IMS comprise:• The midstream device.• A flat card-type device.• A test strip to which a patient's urine is directed.• User instructions, packaging and manuals. [11] IMI is asserted to be the owner of all copyright works by virtue of: a) An assignment by Unilever of its rights in relation to the card-type device and test strips. b) The assignment by Acon of rights in relation to the midstream device and instructions, packaging and manuals. [12] A second cause of action is added, claiming breaches of a distribution agreement entered into between Acon and MDS in 2002 and a confidentiality and non-disclosure agreement between the same parties entered into in October 2005. Neither IMS or IMI were parties to the contracts and there is no pleading that Acon's rights under the contracts were assigned to either. Mr Elliott says this is an oversight. The plaintiffs rely on an assignment to IMI. [13] It emerged in the course of argument that, notwithstanding that both proposed plaintiffs seek relief under both causes of action, IMS is only able to assert a claim for breach of copyright and that is restricted to the midstream-type device. It claims copyright by virtue of its ownership of two Australian patents which protect the device. Mr Elliott's argument is that IMS owns literary copyright in the text of the specification and artistic copyright in the drawings made for the patent. Although conceding that his argument is without precedent and is put on a "first principles basis", Mr Elliott submitted that IMS is entitled to assert a legal or beneficial interest in the component parts of the patent and/or to have an exclusive licence to rely oncopyright in accordance with the patent grant. He put forward an elaborate argument to support his contentions which, despite some obvious flaws, I have to accept as at least tenable for the purpose of this application.Test for joinder[14] Rule 97 of the High Court Rules provides that the Court may add as a plaintiff or defendant any person who: a) Ought to have been joined to the proceeding; or b) Whose presence may be necessary to enable the Court to effectually and completely adjudicate upon and settle all questions involved in the proceeding. [15] The Court has a discretion whether to add parties under the rule even if jurisdiction is established, although Courts tend to favour joinder where jurisdiction exists – Mainzeal Corporation Limited v Contractors Bonding Limited (1989) 2 PRNZ 47; the approach to joinder in New Zealand is liberal – Westfield Freezing Co Limited v Sayer & Co (NZ) Limited [1972] NZLR 137 (CA).Application of principles[16] The crux of the defendants' opposition is that the application is in reality an attempt to substitute the proper plaintiff (IMI) for the existing plaintiff (IMS) who should not have commenced the proceeding in the first place. Ms Walker argued that IMS's presence is not necessary to enable the Court effectually and completely to adjudicate upon and settle all questions in the proceeding. She said the proposed amended claim does not disclose any ground of claim by IMS. She further submitted that, even if jurisdiction exists, the Court's discretion should be exercised against joinder in view of the substantial delay in bringing the application and the continuing deficiencies in the plaintiff's pleadings.[17] There is much in the way the application has been advanced to support the defendants' view that this is in substance an application to substitute a plaintiff, not to add one. The errors in the existing claim are egregious and largely unexplained. The managing director of the IMS subsidiary responsible for its Australasian operations deposed that IMS brought the proceeding as the owner of the Australian patent and the plaintiff in associated proceedings brought in Australia. But that is no justification for a pleading that is so fundamentally deficient and inconsistent with the assignments expressly relied on. [18] It is obvious that IMI should have been the plaintiff from the outset. The case for IMS remaining as a plaintiff rests on a tenuous argument which Ms Walker had no real opportunity to challenge and which it is beyond the scope of this judgment to test. The grounds of its claim are not clearly articulated in the draft amended statement of claim which is an unsatisfactory document in many respects. Some particulars seem designed to obfuscate rather than illuminate. The attempt to join both proposed plaintiffs in all claims on grounds now acknowledged to be spurious is but one example. [19] The circumstances bear no comparison to those in Westfield Freezing Co Limited v Sayer in which a plaintiff company was able to join its overseas parent as a further plaintiff. The Court said the plaintiff had not "stubbornly initiated proceedings" knowing that it was not a party to the relevant contract. In contrast, as I have said, IMS has failed to explain why IMI did not issue the proceedings in the first place. A further point of distinction is that in the Westfield decision, both plaintiff and defendant had knowledge of the relevant contract at the outset, whereas the defendants in this case did not become aware that IMI was the alleged owner of the copyright works until the joinder application was filed. [20] In arguing against joinder, Ms Walker is right to complain about the delay. The proceeding has been on foot for fourteen months. The trial is scheduled to commence on 23 March 2009. Joinder may jeopardise the fixture. [21] Ms Walker further submitted that a refusal to allow joinder will not offend against the objective of avoiding multiplicity of proceedings and unnecessaryexpense. She envisages that IMS would discontinue its proceeding and a fresh proceeding would commence if joinder is refused. She said the plaintiff can hardly rely on the objective of avoiding the delay and expense of multiple actions when its claims to date have led to such an inefficient use of Court resources. [22] Despite these persuasive arguments and the attractions of a clean break and a fresh start, I have decided, by a slender margin, that I should grant the application. I cannot exclude the possibility that IMS may have an arguable, if novel, claim of its own for breach of copyright. The claims of the two plaintiffs are, in any event, closely linked. Undoubtedly, IMI's presence is necessary to enable the Court to adjudicate upon the questions raised in the amended claim. And while there is reason to doubt that IMS will continue to have any meaningful role in the proceeding, that is not a sufficient reason to deny joinder. The Westfield decision makes it clear that in a proper case, an additional plaintiff can be added when the original plaintiff has no cause of action. After discussing Van Gelder, Apsimon and Co. v Sowerby Bridge United District Flour Society (1890) 44 Ch 374 (CA), a patent case in which the Court of Appeal ordered joinder after the wrong plaintiff had commenced proceedings, North P said at 143:In my opinion, that case is clear authority for the view which, so far as I know, has always been accepted in New Zealand, namely that the Court should never dismiss an action for want of parties unless it is compelled to do so for good and sufficient reason. Once the real dispute is before the Court, then it is in the interests of the parties, and indeed in the public interest, that that dispute should be resolved as soon as possible. Accordingly, the failure by a plaintiff to select the right parties should not stand in the way of the Court bringing the dispute to a conclusion by joining additional persons either as plaintiffs or defendants "who ought to have been joined" in the first instance, or "whose presence before the Court may be necessary to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the action.[23] There is then jurisdiction to order the joinder of IMI and, in my view, sound practical reasons why I should do so. The proceeding is already well advanced and approaching a hearing. There is much to be done before it will be ready for hearing, including the additional discovery that IMI's joinder and the new causes of action will necessitate, but not as much as would have to be done if the plaintiffs were required to start again. Wasteful duplication of effort and inefficient use of resources would be unavoidable if a second proceeding were to issue.[24] On balance, I think it is better to properly focus the existing proceeding rather than require the plaintiffs to start again. It is essential, however, that the claim is properly pleaded. As submitted on behalf of the defendants, the amended statement of claim must identify each copyright work with specificity and in respect of each work, the plaintiffs must: a) Identify the exact work that is being relied on (including providing copies of the work, or at least identifying the work with sufficient specificity that the defendant can be sure of the scope of the allegation); b) Identify the author of the work; c) Specify the date of creation of the work; d) Identify which aspects of the work are alleged to be original, and which are copied from earlier works; e) Specify when the work was industrially applied; and f) Identify the specific acts of infringement that are alleged to have occurred, including the dates on which they are alleged to have occurred (which must be within 16 years since the relevant work was industrially applied). [25] As further submitted on behalf of the defendants, the amended pleading must also: a) Provide full particulars of the acquisition agreements; b) Take cognisance of the fact that the manufacturing and distribution agreement with Acon is governed by Californian law and the implications for its claim for cancellation under the Contractual Remedies Act 1979.c) Have regard to the arbitration provision in the manufacturing and distribution agreement requiring the parties to refer disputes "in any way arising or growing out of this agreement" to three arbitrators.Result[26] I grant the application to add Inverness Medical Innovations, Inc as a plaintiff in the proceeding, subject to the filing within 28 days of a second amended statement of claim providing the particulars set out in [24] above and responding to the comments in [25] above [27] The defendants are entitled to the costs of the application. If the parties are unable to agree, I will consider memoranda filed by the defendant within 28 days and the plaintiffs within a further 14 days.