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A “Claim” by any other name: the importance of a properly drafted settlement agreement

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16/12/2014

Stretchline applied to strike out parts of a defence filed by the retailer, H&M, to a patent infringement claim. The patent in suit related to the method of manufacturing tubular fabric for use in brassieres. H&M defended itself on the basis of the patent’s invalidity and counterclaimed for revocation. The proceedings were settled with the parties entering into a settlement agreement.

Some years later, Stretchline again suspected H&M of patent infringement and, again, issued proceedings. It argued its case in two ways: first, that H&M had breached the terms of the settlement agreement, whose enforcement it sought, and, alternatively renewing the infringement claims that were the subject of the earlier action on the basis that H&M had repudiated the settlement agreement. H&M again defended itself on the basis of the patent’s invalidity and denied breaching the settlement agreement.

As the proceedings progressed, Stretchline decided not to proceed with its argument that the settlement agreement had been repudiated and focused solely on enforcing the settlement agreement. It argued, in particular, that the validity or otherwise of the patent had been determined by the settlement agreement, with the consequence that H&M was precluded from now alleging its invalidity. H&M denied that the settlement agreement prevented it from raising an invalidity defence.

The question for determination by the court therefore was whether the terms of the settlement agreement covered the claim for invalidity [1].

The Court reminded itself that there are no special rules for the interpretation of a settlement agreement, and that it must be construed in the same way as any other contract, by establishing the intention of the parties ascertained objectively in the context of the circumstances in which it was entered into. The settlement agreement used the terms “UK Proceedings” and “US Proceedings” which the Court considered also encompassed defences raised in proceedings. The agreement also used the term “Claims”, which – it was held by the Court – was drafted in such a way as to include counterclaims for revocation. Further, it made no sense commercially for the settlement agreement not to cover off claims for invalidity raised as a defence to an infringement claim.

Accordingly, the Court gave judgment for Stretchline, giving effect to the settlement agreement, and H&M was prevented from raising the issue of the validity of the patent whether by way of defence or counterclaim for revocation of the patent.

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[1] Stretchline v H&M [2014] EWHC 3605 (Ch)

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