Ontario Court Interprets Patent Licensing Agreement

In a recent case, the Ontario Superior Court of Justice interpreted an ambiguous patent royalty agreement. The plaintiff, Lauren International, Inc (Lauren), obtained an assignment of patents from the defendant, Gerhard Reichert (Reichert), in return for a royalty of 1% of "Monthly Gross Sales by Lauren of "˜Super Spacer' Products". After the execution of the agreement, which also included the sale of all related business assets, Reichert became an employee of Lauren and made improvements to the products while so employed. Reichert's employment agreement specified that any inventions by Reichert made during the term of the agreement were the property of Lauren. The agreement stipulated that the royalty payments were to end "on the expiry of the Principals' Patent Rights," which included all rights related to the patents in all countries. Reichert asserted that this meant that the payments were to continue based on worldwide sales until the patent rights in every jurisdiction expired. Lauren argued, and Justice Smith agreed, that it meant that in each jurisdiction the royalty obligations ended upon the expiry of the rights in that jurisdiction. He found that it would not be a reasonable interpretation, and would not be commercially reasonable, for payments to continue in respect of jurisdictions when there were no subsisting rights. Rather, he found that Lauren's interpretation accorded with the reasonable expectations and intentions of the parties. Lauren had paid royalties on the total gross world-wide sales of the products for 17 years, which included almost $70,000 in royalties that were not required to be paid under Lauren's interpretation of the agreement. Justice Smith accepted that this was an administrative oversight and did not amount to a waiver. Reichert had made improvements to the product that resulted in three additional patents that became the property of Lauren. However, in the agreement, the "Principals' Patent Rights" were defined to include the original patents and all "extensions thereof". Reichert argued that the improvement patents were extensions of the original patents so that royalties should continue for the term of those improvement patents. Justice Smith rejected this argument, finding that these were new inventions and not "extensions". He found that the latter term referred to term extensions, which may have been possible in some countries, but there was no evidence that any such extension applied to the subject patents. For the full reasons for judgment in Lauren International, Inc v Reichert [2007 CanLII 44351 (ON SC)], see: http://tinyurl.com/2256ty For the lapsed Canadian patent, visit: http://patents.ic.gc.ca/cipo/cpd/en/patent/1285177/summary.html Summary by: Tom Feather