“Under the circumstances, I see no means by which the applicant could amend the specification to overcome the deficiencies identified…” 1 concluded the Australian Commissioner of Patents’ Delegate in the successfully opposed patent application decision Fonterra Co-operative Group Ltd. v Perfect Day, Inc. [2022] APO 59 (23 August 2022).
How many patent applicants would roll over at this stage?
Why would the applicant Perfect Day invest the time, effort, and expense in appealing this decision to the Federal Court?
Why was the opposition successful?
Perfect Day’s Australian Patent Application 2015305271 2 describes a process for making animal-free milk protein via microbial fermentation, enabling it to create alternative dairy substitutes for use in dairy products without going anywhere near an udder.
The issue? The overwhelming focus of the specification, commencing with the title “Compositions comprising a casein and methods of producing the same” (emphasis added), relates to compositions comprising casein protein(s); however, the claims are limited to the combination of α-lactalbumin and β-lactoglobulin (along with ash, sweetener and (optional) lipid) in a “food composition [that] does not comprise any other milk proteins than those” two.
The Delegate agreed with the opponent, Fonterra, that the claims failed to disclose how a dairy substitute food product having the claimed functional characteristics could be made without casein (claims lacked support under s 40(3) Patents Act 1990 (Cth)). 3
Further, the specification did not provide clear or complete enough guidance on how α-lactalbumin and β-lactoglobulin could be used to replace casein whilst delivering properties traditionally attributed to casein (disclosure was insufficient under s 40(2)(a)). 4
In fact, Perfect Day’s additional evidence from Mr Jhala, meant to assist on these fronts, was counterproductive. 5 Mr Jhala’s explanations were found to come from his personal observations and experience, rather than from his (and therefore a person skilled in the art’s) reading of the specification and common general knowledge.6
After acceptance, the claims cannot be amended to claim subject matter outside the scope of the claims prior to amendment. 7 If it were not for the explicit disclaimer in the accepted claims to exclude all other proteins other than α-lactalbumin and β-lactoglobulin, then the claims could be amended to introduce casein and arguably the section 40 issues would be addressed. However, even if such an amendment were allowable, such a claim would likely be vulnerable to novelty and/or inventive step challenges based on our reading of the foreign prosecution history.
Why did Perfect Day appeal?
So why did Perfect Day appeal to the Federal Court when the Delegate unambiguously identified the application as fatally flawed?
Perfect Day had only 21 days following the Delegate’s decision in which to lodge an appeal. 8 The obvious time pressure involved (and Fonterra’s own developments, discussed below) would encourage Perfect Day to lodge an appeal to at least keep its options open at minimal upfront cost. This matter could easily take a year to reach a hearing, with at least a further 6-12 months for a judgment to be issued. Perfect Day now has the time to take stock and consider whether to continue to fight or to withdraw the appeal. With a pending divisional application, and a protracted appeal process, uncertainty about Perfect Day’s eventual rights may exist for several years.
Unlike in other jurisdictions, in Australia, an “appeal” to the Federal Court is only an appeal in name, not in any technical sense. The de novo hearing is effectively an original proceeding, which provides a blank slate, as the only evidence the judge considers in its decision-making is that presented at the hearing and admitted by the court. Both parties can submit new evidence and retain new or additional experts.
What is needed to succeed?
Perfect Day can use this opportunity to present a case that looks vastly different to that brought before the Delegate. It will certainly seek to overcome evidential deficiencies identified by the Delegate by providing new and/or additional evidence about common general knowledge, the person skilled in the art and perhaps demonstrate how the claims do disclose the requisite guidance for the invention to be made. However, Fonterra may also use the appeal to attack the patent application for the clarity issues raised (but not relied upon) 9 by the Delegate, as well as the grounds of support and sufficiency. Fonterra has filed a Notice of Contention, which indicates it contends that the Delegate’s decision should be affirmed on grounds other than those relied on by the Delegate, so it appears to be ready to widen its challenge to the grant of this patent. 10 The case has been assigned to Justice Rofe, a recently appointed justice of the Federal Court, but one with immense IP experience as a Queens Counsel.
Even while success may seem difficult to achieve, the appeal keeps alive the possibility of a granted patent for Perfect Day, and putting up a staunch fight for its IP rights plays well for Perfect Day’s positioning of itself within the field of dairy substitutes globally.
Protecting Perfect Day’s reputation and its commercial strategy endgame
This patent family describes platform technology for Perfect Day and may be of critical importance. This appeal will signal to investors and recent partners such as Nestle that Perfect Day will pursue all available options to protect its value, which sits primarily in the anticipated pecuniary value of its science and technology in the emerging animal-free dairy category. Rigorous IP defence may even be a condition for investment and partnership.
The double-edged sword of an appeal
Either way – win or lose – Perfect Day can use the appeal process to its benefit. If the appeal fails, it will have delayed the decision on the patent application’s validity and the scope of Perfect Day’s monopoly over using microbial fermentation processes to create animal-free dairy compositions. Perfect Day has bought itself several years to retain the artificial monopoly afforded by having an accepted patent application on record, and the looming possibility of a granted patent. Perfect Day can also use the pending divisional application and further applications divided from that application to recover any scope deemed patentable during the appeal process. These actions may well cause enough uncertainty to stall and limit competitors from the absolute freedom to advance and develop similar scientific methods in the creation of alternative dairy products. Even a lost appeal may well be a commercial win, as part of a strategy to stifle or delay the commercial prospects of competitors.
Fonterra’s position
In late August 2022, Fonterra publicised its own intent to develop and commercialise fermentation-derived proteins with dairy-like properties. Fonterra and its partner Royal DSM’s next moves must delicately balance the drive to be a player in the dairy substitute market of the future and the risk of liability (and award of damages) if it infringes any patent that may be granted to Perfect Day. On the face of it, Fonterra will not be able to rely on the publication defence (section 57(4)) in any future infringement proceedings brought by Perfect Day. Fonterra will no doubt actively engage in the appeal process to continue to spotlight issues with Perfect Day’s evidence, the patent’s clarity, insufficiency, and lack of support. And in the event of a granted patent, Fonterra would still have recourse to seek its revocation.
How we see it
At first glance, it seems rather optimistic to appeal when the Delegate has decided, perhaps reasonably, that the specification claims the complete opposite invention to that described, and that there are no means by which the deficiencies can be overcome through amendment. Yet, on closer inspection, there are many reasons why Perfect Day would lodge an appeal. If it can use the de novo proceeding to experience a ‘perfect day’ in court, the stars may align to grant it a monopoly over a hotly contested scientific process that could lead to valuable product offerings.
And if it fails, it has leveraged legal strategy to create uncertainty over the scope of its future patent rights for a considerable period to impair competitors’ own IP protections in this space. Any impending Federal Court decision covering support and sufficiency will be a useful addition to legal precedent and of academic and practical interest, and we look forward to keeping you informed of the developments as they occur.
1Fonterra Co-operative Group Ltd. V Perfect Day, Inc. [2022] APO 59 (“Fonterra v Perfect Day”) at [122].
2Fonterra v Perfect Day, at [120] – [121].
3Fonterra v Perfect Day, at [93] – [94].
4Fonterra v Perfect Day, at [109] – [110].
5Fonterra v Perfect Day, at [92].
6Fonterra v Perfect Day, at [93] and [108].
7Patents Act 1990, s 102(2).
8Federal Court Rules 2011, rule 34.24.
9Fonterra v Perfect Day, at [37].
10Federal Court Rules 2011, rule 34.29
