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A step too far? Damaging restrictions in a settlement agreement

In Stretchline Intellectual Properties Ltd (Stretchline”) v H&M Hennes & Mauritz Ltd (“H&M”), the High Court had to consider an application by the Claimant to strike-out part of the Defendant’s defence based on the terms of a settlement agreement.

The parties had previously been involved in a patent dispute which related to a method of manufacturing tubular fabric for incorporation in the production of brassieres. Stretchline had previously asserted that H&M was selling brassieres manufactured by others which incorporated fabric that infringed its patent. It commenced infringement proceedings against H&M, and H&M filed a defence asserting invalidity of the patent, as well as a counterclaim for revocation of Stretchline’s patent on the grounds of invalidity. The parties settled those proceedings by way of a settlement agreement. In that settlement agreement, H&M agreed not to attack the validity of the patent in the future.

Subsequently, Stretchline believed that H&M was once again infringing its patent again and issued proceedings for patent infringement and/or an order to enforce the terms of settlement. H&M filed a defence claiming that at, all material times, the patent was invalid and that it had not breached the settlement agreement.

As part of the proceedings, Stretchline sought to narrow the issues in dispute and applied to strike-out part of H&M’s defence which related to the claim that the patent was invalid.  Stretchline argued that H&M could not attack the validity of the patent given the terms of the previous settlement agreement.

The Court decided that, on the proper interpretation of the settlement agreement, H&M were unable to attack the validity of the patent. Therefore, H&M were prevented from asserting that the patent was invalid and this part of its Defence was struck out.

Roy Crozier, a Partner in the Intellectual Property Group said: “Parties need to give very careful consideration before agreeing to any limit on their ability to challenge the validity of an intellectual property right in future. In the limited circumstances where it is appropriate, the agreement should usually be restricted to not challenging the right unless in response to infringement proceedings brought by the intellectual property right owner.”