Stretchline Intellectual Properties Ltdv H&M Hennes & Mauritz UK Ltd

A settlement agreement is construed as a contract by asking what a reasonable person, with the relevant background, would understand its language to mean. Broad recitals, a general release, an agreement not to sue and a stay can together compromise all disputed issues, including patent validity, and bind a party not to raise invalidity by defence or counterclaim. Statutory rights to challenge a patent may be contractually surrendered. A different test for a claimed technical feature does not avoid the release where the patent claims are expressed generally, the tests address the same quality, and the alternative was reasonably within contemplation. A release of unknown claims remains confined by its subject matter and context. A claimant who has compromised the patent dispute may also be precluded from pursuing infringement in parallel with the contractual remedy.

Following earlier patent infringement proceedings, Stretchline and H&M entered into a worldwide settlement agreement concerning wire-casing products. The agreement included a full and final settlement, a general release, an agreement not to sue and a stay of the earlier proceedings.

Stretchline later brought proceedings alleging breach of the settlement agreement and patent infringement. H&M denied liability and challenged the validity of the Patent by defence and counterclaim. Sales J held that the settlement agreement precluded that challenge and struck out the relevant parts of H&M’s case: [2014] EWHC 3605 (Ch). The appeal concerned the scope of the settlement, the effect of statutory rights to challenge validity, and whether a later reliance on a different penetration test took the dispute outside the agreement.

The appeal was dismissed. Kitchin LJ gave the judgment, with Briggs LJ and Aikens LJ agreeing.

1. The settlement agreement had to be construed as a contract. The question was what a reasonable person, equipped with the relevant background reasonably available at the time, would have understood the parties to mean from the language used.
2. Read as a whole, the agreement showed an intention to bring finality to the parties’ worldwide dispute. The recitals, the payment in full and final settlement, the broad release in clause 4.1, the agreement not to sue in clause 5.1 and the stay in clause 6.1 encompassed the validity issues raised in the earlier defence and counterclaim.
3. H&M had compromised its ability to challenge the Patent by defence or counterclaim. Although sections 74(1)(a) and 74(1)(d) of the Patents Act 1977 conferred rights to put validity in issue, H&M had contractually agreed not to exercise those rights against Stretchline.
4. Kitchin LJ additionally expressed the view that Stretchline was precluded from pursuing a parallel infringement claim. That issue had not been sought by either party, so the court proceeded on the assumption that the infringement claim could be maintained. Even on that assumption, the settlement barred H&M’s invalidity defence and counterclaim.
5. The reasoning in Bank of Commerce and Credit International SA v Ali [2001] UKHL 8, [2002] 1 AC 251 did not assist H&M. Lack of awareness of a later claim was not enough to escape a general release. The scope of the release remained governed by its language, subject matter and context.
6. The Patent claims did not require the L+M sewability test. The specification described it as a test for a preferred embodiment, while the claims used general language concerning resistance to penetration. A pin penetration test could therefore be relevant if it measured the same quality. H&M had not shown that use of such a test was outside reasonable contemplation when the settlement was made.

1. Court of Appeal (Civil Division): H&M’s appeal was dismissed. The order striking out its validity defence and counterclaim was upheld.
2. High Court of Justice, Chancery Division (Patents Court): Sales J held that the settlement agreement precluded H&M from challenging the validity of the Patent and struck out the relevant parts of the defence and counterclaim: [2014] EWHC 3605 (Ch).