Thursday, July 19, 2018

“Make, Construct and Use” in Settlement Does Not Include “Sell”

Betser-Zilevitch v Nexen Inc 2018 FC 735 Brown J

This case is on the margins of what I normally blog about: the issue is whether a settlement agreement had been reached between the patentee Betser-Zilevitch, and the defendants, Nexen. The leading case on whether a settlement agreement has been reached is Apotex Inc v Allergan Inc 2016 FCA 155 Stratas JA; Trudel, Nadon JJA rev’g 2015 FC 367 Hughes J (which I did not blog about at the time). Here are a couple of the passages from Apotex Inc v Allergan Inc (citations omitted):

[32] The court is to view the specific facts of the case objectively in light of the practical circumstances of the case and ask whether the parties intended to be legally bound by what was already agreed or, in other words, whether an “honest, sensible business[person] when objectively considering the parties’ conduct would reasonably conclude that the parties intended to be bound or not” by the agreed-to terms. Put another way, looking not through the eyes of lawyers, but through the eyes of reasonable businesspeople stepping into the parties’ shoes, was there something essential left to be worked out? Another way of putting it is to ask how “a reasonable [person], versed in the business, would have understood the exchanges between the parties”.

[33] When courts find that there has been an agreement on essential terms, they will often imply non-essential terms into the agreement. The lack of agreement on non-essential terms will not stand in the way of a finding of an agreement. Put another way, “it is not necessary that the original contract include all the ancillary terms that are already implicit in its content”. “Even if certain terms of economic or other significance to the parties have not been finalized, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement”. For example, assuming an agreement on essential terms is otherwise in place, courts can imply terms concerning the granting of a release, the manner of payment and the timing of payment. Often these will be “mere formalities or routine language.”

In this case, Betser-Zilevitch had made a offer by letter dated January 25, 2017 [22], and Nexen replied that it “is prepared to agree in principle” to those terms  (all through counsel) [24]. Betser-Zilevitch’s counsel then wrote to the Court, with Nexen’s consent, stating that “We advise that a settlement has been reached, subject to formalization, review and execution by the parties of a formal settlement agreement” [26].

Further exchanges ensued as draft agreements were exchanged, with the parties objecting to various details. Ultimately Betser-Zilevitch advised that “there was no agreement regarding settlement, that all prior settlement offers were withdrawn, and that all offers made by the Defendants were refused” [11]. The Defendants filed a motion seeking a declaration that a settlement had been reached.

Brown J granted the motion. The letter to the Court, in particular, was “convincing evidence” of the intent of the parties to create legal relations, as it was “unequivocal” in stating that a binding settlement had been reached [35]. The reference in the acceptance to an agreement “in principle” did not affect this conclusion, as that phrase must be understood contextually [31].

It was then left for Brown J to resolve the disputed terms, which he did largely by holding the parties to the terms in the offer in the letter of January 25, 2017. He found that most of the contested points were efforts by one party or the other to use the drafting process to vary the terms that had already been agreed upon.

The point of most general interest is that the offer letter specified that “Mr. Betser will agree to provide Nexen an up-front, fully paid up license to make, construct and use the invention” [22, emphasis added]. Nexen proposed that the formal agreement include the right to “sell” in addition [60]. Brown J disagreed, holding that the right to sell was not an essential term, and should not be implied:

[63] The parties were represented by counsel. They would or should have known that section 42 of the Patent Act identifies four key rights afforded to patent holders like Betser-Zilevitch. The four rights granted by section 42 may be granted or withheld as the patent holder wishes; they are property of the patent holder. Nexen accepted a settlement agreement that did not contain the Right to Sell.

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