The Court of Appeal has confirmed that a settlement agreement between Stretchline Intellectual Properties Ltd (Stretchline) and H&M Hennes & Mauritz UK Ltd (H&M) precluded H&M from challenging the validity of the patent concerned. This was the case even though Stretchline now alleged breach of the settlement agreement and infringement of the patent.
The Court of Appeal's judgment dated 22 May 2015 confirmed Sales J's judgment of 14 October 2014.
Stretchline's patent concerns fabric tubes which are used to encase the under-wires in garments such as bras and swimming costumes. A problem with such underwires is that their ends sometimes penetrate the tubes which encase them, causing discomfort to the wearer of the garment. The patent claims to solve this problem by providing a barrier. The barrier is created by weaving into the fabric a fusible yarn. In the drying process, the yarn melts into the fabric, bonds to the other fibres in the fabric and solidifies.
Several years ago, Stretchline sued H&M for infringement of its patent. The proceedings were compromised, at a relatively early stage, in May 2011, by the parties entering into a settlement agreement. In 2012, Stretchline became suspicious that H&M was once again selling bras incorporating underwire casing components made in accordance with the claims of the patent. In 2013, it brought new proceedings.
Stretchline alleged that H&M had breached the terms of the settlement agreement and infringed the patent. H&M responded to these new claims by way of defence and counterclaim. It contended that it had not acted in breach of the settlement agreement nor had it infringed the patent for two reasons: 1) its bras did not fall within the scope of the patent; and 2) the patent was invalid.
Stretchline applied to strike out H&M's validity challenge
Stretchline sought to strike out those parts of H&M's pleaded case which raised the issue of the patent's validity, whether by way of defence or counterclaim.
The question was whether the terms of the settlement agreement entered into in 2011 precluded H&M from raising the challenge in the later proceedings.
Sales J thought H&M was precluded, and the Court of Appeal agreed.
Noting that the settlement agreement must be construed in the same way as for any other contract, Kitchin LJ said that this meant ascertaining what a reasonable person would have understood the parties to mean by using the language of the agreement against the background which would reasonably have been available to them at the time.
The reasonable person would have understood that the parties intended, by the settlement agreement, to compromise all issues in dispute between them ("settlement of the Claims or any other claim relating to the subject matter referred to in the litigation"), including the issue of validity of the patent, and to substitute the contractual arrangements contained therein.
H&M had therefore bound itself from defending both the breach of contract claim and the patent infringement claim by challenging the validity of the patent. It made no difference whether the challenge was in the form of a defence or a counterclaim.
Nor did it make any difference that Stretchline was arguing its case on infringement in a different way than it had adopted in the earlier proceedings. The patent gave scope for using more than one type of test in evidence in support of infringement and there was no evidence before the court that H&M had entered into the settlement agreement believing that infringement must be determined by the test employed in the context of the earlier proceedings.
If the validity challenge was precluded why was the patent infringement claim not precluded?
The Court of Appeal had the same question. Kitchin LJ thought it clear that the terms of the settlement agreement precluded Stretchline from pursuing its claim for infringement of the patent in parallel with its claim for breach of contract. But this was not an issue that either party had asked the court to decide. Each of Stretchline's claims (of breach of contract and patent infringement) will depend upon them showing that H&M's activities fell within the claims of its patent, but there may be implications for monetary relief.
Parties considering settlement of a dispute, and their legal representatives, may wish to be aware of the English courts' approach in this case. In particular, where a validity challenge is settled, this may impact the alleged infringers' defences to any later claim arising in connection with in the asserted right or the parties' compromise.