Ontario Court Declines to Enforce No-Challenge Patent Clause

On February 3, 2020, in Loops v. Maxill Inc., 2020 ONSC 971, the Ontario Superior Court (the Court) dismissed a motion by Loops, LLC (Loops) for an injunction prohibiting Maxill Canada from challenging the validity of a U.S. patent owned by Loops.  In reaching this decision, the Court declined to enforce a no-challenge clause contained in a settlement agreement between the parties. 

Loops and Maxill are competitors in the toothbrush business and Loops previously sued Maxill in Canada for patent infringement.  The case was settled in 2014. The settlement agreement contained a “no-challenge” clause stating that Maxill Canada would not directly or indirectly assist any person attacking the validity of either Loops’ Canadian patent or corresponding U.S. patent.

Maxill created another toothbrush and was sued by Loops in Canada for breach of the settlement agreement and also in the U.S. for patent infringement.  Maxill U.S. defended the U.S. claims on the basis of non-infringement and that the U.S. patent was invalid.  Loops sought to enforce the no-challenge clause in Ontario to prevent Maxill U.S. from advancing invalidity arguments in the U.S. action.

The Court declined to enforce the no-challenge clause on a number of grounds, including, that the parties in the U.S. action were not the same as the parties to the agreement, and that the language of the clause did not preclude Maxill U.S. itself from attacking the validity of the U.S. patent.

However, most of the Court’s decision focused on not enforcing the clause because it was not reasonable in the public interest. While the issue had not previously been decided in Canada, the Court was persuaded by the U.S. position that there is strong public policy considerations in favour of permitting full and free competition in the use of ideas that are in reality part of the public domain.

While courts typically give deference to the private ordering of commercial affairs, parties should be aware that the public interest in permitting the challenge of patents that may be invalid will factor into a court’s consideration of any no challenge clause.

Summary By: Matt Frontini