The Australian Government recently enacted the Civil Dispute Resolution Act 2011 (CDRA) in an attempt to move towards an early resolution-based approach to disputes. The new legislation came into operation on August 1 2011 together with an updated version of the Federal Court of Australia's Rules concerning civil procedure.
The CDRA imposes mandatory pre-litigation requirements on potential litigants wishing to begin civil proceedings in the Federal Court, which is the primary jurisdiction for IP litigation in Australia.
The most important change that the CDRA introduces is that potential litigants must take genuine steps to resolve their disputes before certain civil proceedings, including IP litigation, can be issued in the Federal Court. Failing to take genuine steps, however, cannot invalidate proceedings or otherwise prevent a potential applicant from issuing a new proceeding. The court's jurisdiction is only invoked when a proceeding is begun; the CDRA does not allow it to police pre-litigation conduct in real time. The consequences of non-compliance will probably be limited to costs, and perhaps only for the initial stages of a proceeding up to and including the first directions hearing.
The CDRA gives the court a wide discretionary power "in performing its functions or exercising its powers" to take account of whether a litigant has filed a genuine steps statement (GSS) and whether it has taken genuine steps to resolve the relevant dispute. This power is unfettered, undefined and in theory, could mean anything. However, the CDRA goes on to give the court a specific discretionary power to take a litigant's genuine steps into account when considering costs.
When filing an originating application, applicants must also attach a GSS. This document must specify the steps that have been taken to try to resolve the issues in dispute between the applicant and the respondent to the proceeding.
If no genuine steps have been taken at the time of filing the originating application, the GSS must specify why. The CRDA lists some non-exhaustive examples where this might be justified, such as when the proceedings are urgent or where the safety or security of any person or property would be compromised by taking genuine steps.
The new legislation will not require any change in approach for litigants who wish to seek extraordinary relief such as interlocutory injunctions or Anton Piller search orders. Likewise, IP owners seeking to enforce their rights following a seizure of infringing products by the Australian Customs Service are unlikely to be materially affected, given the tight deadlines imposed by the relevant Customs regimes.
Once the originating application and GSS have been served on the respondent, it must file its own GSS in reply before the first directions hearing in which it states whether it agrees with the applicant's GSS or sets out the reasons why it does not.
The CDRA also imposes a duty on lawyers to advise their clients of the genuine steps requirement and to file a GSS, and to assist their clients in complying with the requirements. Lawyers who fail to carry out this duty sufficiently could be at risk of an adverse cost order being made against them personally. The CDRA also expressly prohibits lawyers from recovering these costs from their clients.
What are genuine steps?
The CDRA does not provide a definitive list of what actions will constitute genuine steps. The court is given discretion to consider which actions will satisfy the requirements, taking account of the circumstances of the particular case. The CDRA states that: "… a person takes genuine steps to resolve a dispute if the steps taken by the person in relation to the dispute constitute a sincere and genuine attempt to resolve the dispute, having regard to the person's circumstances and the nature and circumstances of the dispute".
The CDRA goes further to provide some non-exhaustive examples of genuine steps that could be taken. These include:
- notifying the other party of the relevant issues and offering to discuss them;
- providing relevant information and documents to the other party;
- negotiating with the other party;
- considering the use of alternative dispute resolution (ADR); and
- attending any ADR method agreed to by the parties and if it does not resolve the dispute, considering another method.
The most striking aspects of the above examples are that document exchange and ADR, such as expensive privately arranged mediation, may be required before litigation is even begun. In this situation, the overall costs of litigation would obviously be front-ended and possibly increased, but a dramatic change in strategy would also be needed for most litigants due to the requirement to disclose documents so early in a dispute.
The potential for litigious contests over allegations of non-compliance with the CDRA is also unpalatable and they were described as "arid disputes" that "are to be avoided" in the Federal Court's submission to the government on the CDRA when it was a draft bill.
These types of concerns played a role in the repeal of similar, but slightly more onerous pre-litigation requirements that were scheduled to come into effect in the state of Victoria. Legislation was passed by the Victorian Parliament, and was due to come into force on July 1 2011, under which potential litigants were required to take reasonable steps to resolve their disputes before issuing proceedings, and this expressly included document exchange and ADR participation for many cases.
A change in state government after an election in November 2010 brought about the repeal of these provisions before they had actually come into force. In new Attorney-General Robert Clark's second reading speech to the Victorian Parliament on the repealing Bill, he asserted that the relevant pre-litigation requirements would add to the complexity, expense and delay of litigation.
However, it is also within the court's discretion to take a very light-handed approach to the provisions and indeed, the government's Explanatory Memorandum for the CDRA states that the court's direction is designed to "allow to tailor the genuine steps that they take to the circumstances of the dispute".
There is uncertainty about what is precisely required. The possibility that some judges will actively exercise their discretionary powers under the CDRA at their own motion, particularly in cases where early settlement is a genuine possibility, cannot be ruled out. In addition, it seems likely that an opportunistic litigant will eventually make an application and attempt to force the issue.
For the time being, however, the established approach of sending a letter of demand and allowing a reasonable period of time for compliance may be enough in many IP cases, particularly where there is little middle ground between the parties.
Anecdotally, practitioners appear to be indifferent about the genuine steps requirements in the CDRA and in IP cases, most litigants and practitioners seem to be adopting an unchanged approach to the early stages of disputes, albeit in purported compliance with the CDRA.
This is consistent with the negative submissions made by lawyers to the government while the CDRA was still a draft Bill. In particular, the Law Council of Australia – the peak body for Australian lawyers with about 56,000 members – and the Federal Court itself expressed concerns about the lack of definition of what actions constitute genuine steps and the potential for added cost, delay and complexity to litigation.
The impact on litigation
Six months have passed since the introduction of the CDRA and there are no reported decisions in which a court was required to apply the new provisions – in IP litigation or any other kind of civil litigation.
This is likely to be a reflection of the fact that no-one has applied for any type of relief under the CDRA; it seems unlikely that the court has been asked to apply the new provisions.
For example, in one case, an applicant made allegations of trade mark infringement against a wholesaler of goods believed to be counterfeit. Before beginning proceedings, which occurred after the CDRA came into effect, the applicant sent a letter of demand and the respondent rejected all of the allegations contained in it.
Proceedings were begun without any form of ADR having taken place and without any exchange of documents. The applicant's GSS simply referred to the correspondence that had been exchanged as the relevant genuine steps and the respondent's GSS agreed with the applicant's account. No issue was raised at the scheduling conference – the first procedural hearing before the judge – and with that being the most logical time for an application to be made, it is unlikely that the issue will surface later in what is otherwise a fully contested proceeding.
This is likely to be a common experience in contested trade mark anti-counterfeiting disputes, where the parties can have drastically different expectations about how the dispute should be resolved. In this situation, the brand owner typically adopts an uncompromising position in which it seeks to publically enforce its rights and ensure that any counterfeit goods are taken off the market. If the alleged counterfeiter is not prepared to capitulate, or if it ignores the brand owner's demands, undertaking pre-litigation steps beyond sending a letter of demand would be pointless.
Getting people round the table
In other types of cases, the genuine steps requirement could prompt parties to meet, even if informally and without a mediator, in an attempt to resolve their dispute. The new provisions can be used opportunistically by potential respondents by threatening to include any refusal to meet in their GSS. Particularly in the early stages of the CDRA's existence while there is no judicial interpretation to rely on, potential applicants could find themselves in a position where they would prefer to delay issuing proceedings and to have a settlement meeting rather than risk being involved in a test case on the application of the CDRA.
In these circumstances, the CDRA could give potential respondents an edge over an opponent who would otherwise issue proceedings quickly as part of a show of strength strategy, by forcing them to pause and come to the negotiation table. This may be particularly relevant for large professional litigant brand owners who routinely take their disputes against small companies and individuals to court without delay.
Clearly, this proposition is speculative and virtually impossible to monitor given that there are no public records of any settlement meetings in the name of taking genuine steps, and many pre-litigation settlement meetings would occur even without the requirement.
For example, in a dispute over trade mark ownership, a letter of demand was sent and responded to with a request for a meeting, noting that the CDRA arguably required the parties to have one. In this particular matter, it made commercial sense for both parties to meet and avoid litigation and the meeting was ultimately successful. While the CDRA arguably has merit for the purpose of prompting parties to come to the negotiating table early, this particular meeting probably would have occurred even without it.
Likewise, early resolution of patent litigation is often attractive to both parties in light of the potentially excessive costs involved in that type of litigation, particularly in the common situation of infringement allegations and counter-claims for invalidity. Here, the genuine steps requirement may serve as a useful way for parties to get to the negotiating table early to discuss potential licensing arrangements, which is a common result in patent disputes, but those commercial imperatives are likely to prompt negotiations.
The CDRA can also be seen as a companion of recent innovations that address the issues of delay and expense in running litigation in the Federal Court. These include the Fast Track List, which was introduced in 2007 to expedite the litigation process by enabling disputes to be heard and judgment delivered within five to eight months of filing, as well as the "overarching purpose of civil litigation" which was added to the Federal Court of Australia Act 1976 in 2010. Both changes emphasised promoting early settle ments and use of ADR during the litigation process.
From a procedural point of view, the CDRA will ensure that litigants consider how they can resolve their disputes and make them accountable, at least on paper, for doing so. The requirement will possibly persuade parties to a dispute to come to the negotiating table earlier than they otherwise would have done, but there is no guarantee that it will discourage litigation. In addition, without a definitive list of what actions constitute genuine steps, and the lack of reported judicial consideration of the term, uncertainty exists about the extent to which parties must go to satisfy the new requirements. More time is needed before assessing how successful it has been.
Colin is a founding partner at Actuate IP, an award winning Australian IP practice. Based in Melbourne, his firm services clients nationally and internationally.
Colin has practised extensively in the field of IP law and his areas of expertise include trade mark, design and patent strategy as well as IP dispute resolution and litigation.
IP litigation forms a predominant part of his practice and he has represented clients across a range of industries in Federal Court trade mark, copyright and patent enforcement matters. He also has particular expertise in conducting trade mark opposition proceedings before IP Australia.
Colin’s practice has a focus on high growth online businesses, patent-based technology businesses as well as brand driven businesses. He is involved in all aspects of a business’s IP needs – setting up and then implementing IP strategies both here in Australia and internationally.
Joel is a senior associate with Actuate IP, an experienced IP lawyer and a registered trade marks attorney.
He specialises in trade mark anti-counterfeiting litigation. During his career he has acted for many of the world’s leading personal care and luxury fashion brands. More locally, Joel also recently assisted a medium-sized Australian company to obtain an injunction against former employees who started a rival company with the same trade mark and breached clauses of their employment contracts.
Joel’s practice covers a wide range of IP disputes relating to infringement and ownership, as well as commercial work and strategic advice. He focuses on trade mark prosecution and portfolio management and has extensive experience in this regard.
His track record includes a stint working in-house with a prestigious medical research institute, giving him valuable commercial IP experience.