In a recent decision, the Ontario Superior Court of Justice, Divisional Court (the “Court”), affirmed the enforceability of patent restrictive covenants (so-called “no-challenge clauses”) in settlement agreements.
In 2014, Loops L.L.C. and Loops Flexbrush L.L.C. (“Loops”) and Maxill Inc. (“Maxill”) entered into a settlement agreement to resolve a patent infringement action by Loops against Maxill. The agreement, governed by the laws of Canada and Ontario, contained a no-challenge clause in which Maxill agreed “not to directly or indirectly assist any person in attacking the validity” of certain Loops patents. Loops subsequently commenced actions in Ontario and Utah claiming Maxill breached the agreement and infringed a U.S. patent covered by the agreement. Loops filed a motion for an interlocutory injunction in the Ontario action. The motion judge dismissed the injunction request. The motion judge found that a strong prima facie case was lacking because Loops’ evidence was rebutted by the fact that the no-challenge clause was not reasonable in the public interest, based on U.S. caselaw principles.Continue reading