Thursday, September 16, 2021

Anti-Suit Injunction Refused

 Seismotech Safety Systems Inc v Forootan 2021 FC 773 McHaffie J

2,199,189 / 2,364,081 / 2,551,847 / 2,551,854 / 2,552,603 / 2,621,287

Anti-suit injunctions, anti-suit injunctions and even anti-anti-suit injunctions, are a hot topic these days in the context of global SEP / FRAND proceedings: see eg Jorge Contreras, The New Extraterritoriality: FRAND Royalties, Anti-Suit Injunctions and the Global Race To The Bottom In Disputes Over Standards-Essential Patents, 25 BU J Sci & Tech L 251 (2019). On the other hand, Canadian anti-suit injunctions related to patents are rare—I think this is the first I’ve seen in the decade that I’ve been writing this blog. This adds interest to McHaffie J’s decision refusing Seismotech’s motion for an anti-suit injunction that would have prevented Mr Forootan from litigating a patent settlement agreement in California, though the circumstances of this case are very far removed from SEP / FRAND litigation.

Seismotech is owned by Reza Baraty, who invented disaster management technology that eventually gave rise to several Canadian and US patents. Mr Baraty is a BC resident and Seismotech is a BC company [8]. For convenience, I’ll refer to them collectively as Seismotech. Seismotech entered into a Purchase and Sale Agreement [PSA] with Mr Forootan under which Mr Forootan was to raise capital to assist in commercializing the technology [12]. The PSA includes a choice of law clause stating that the agreement “shall be governed by and construed in accordance with the laws of Canada, without giving effect to conflict of laws” [13]. As part of the PSA, Seismotech assigned the patents to Mr Forootan’s company [11].

The relationship soured and the parties began litigation. In 2015, Mr. Forootan filed a complaint in the California State Court [2015 California Action]. This was then settled by a Settlement Agreement in 2017, after mediation which took place in California [15], [16], [49]. Then things got messy. In January 2020, Mr Forootan filed a complaint in California District Court [the 2020 District Court Action] alleging breach of the Settlement Agreement, and seeking remedies including a transfer of the US and Canadian patents back to Mr. Forootan [21]. Five months later, Seismotech started an action against Mr Forootan in the Supreme Court of British Columbia [2020 BC Action], seeking a declaration that the US and Canadian patents belong to Seismotech. (So at this point we have parallel actions in US federal court and BC provincial superior court.) Now, as readers are aware, in Canada provincial superior courts have exclusive jurisdiction over purely contractual matters, though the Federal Court has jurisdiction over patent law. Contractual disputes involving patents are on the borderline, and cannot necessarily be heard in Federal Court. The US has a similar division, with state courts having jurisdiction over contractual disputes and the federal court system having jurisdiction over patent matters. Six months after Seismotech started the BC action, the 2020 District Court Action brought by Mr Forootan was dismissed for lack of jurisdiction, without prejudice to refiling in state court [23]. (Now we’re down to just the BC action.) As it turns out, just three weeks after Seismotech brought the 2020 BC Action, SALT v Baker 2020 FCA 127 was decided, holding that the Federal Court jurisdiction to hear contractual matters related to patents was broader than had previously been understood. Consequently, two weeks after Mr Forootan 2020 District Court Action was dismissed, Seismotech started an application in the Federal Court seeking declarations similar to those in the 2020 BC Action, though without formally discontinuing the BC action. (Now we have two Canadian actions, no US actions.) Two weeks after that, Mr Forootan started an action in the California state court [the 2021 California Action.] (Two Canadian actions, one US state court action.)

Seismotech then brought the present motion for an anti-suit injunction, seeking to prohibit Mr Forootan from pursuing the 2021 California Action as it pertains to the Canadian patents [48].

In deciding whether the anti-suit injunction should be granted, McHaffie J applied Amchem [1993] 1 SCR 897 and subsequent cases developing its principles. The first question is whether the Federal Court has personal jurisdiction over Mr. Forootan. McHaffie J held that requirement is satisfied. The underlying question in this litigation is who owns the Canadian patents on the basis of the Settlement Agreement. In light of SALT v Baker, McHaffie J was satisfied that the Federal Court has jurisdiction to hear such a matter, and that satisfies the “real and substantial connection” test [51].

At the next step, according to Amchem 931–32 (emphasis added):

the domestic court as a matter of comity must take cognizance of the fact that the foreign court has assumed jurisdiction. If, applying the principles relating to forum non conveniens outlined above, the foreign court could reasonably have concluded that there was no alternative forum that was clearly more appropriate, the domestic court should respect that decision and the application should be dismissed.

In this case, “[t]he question is thus whether the California State Court could reasonably have concluded there was no alternative forum (here, the Federal Court) that was clearly more appropriate” [54]. The California State Court has not yet actually made such a determination, so the question for McHaffie J was whether it could reasonably have done so.

While the Settlement Agreement does relate to some Canadian patents [58], there are many aspects which relate to the US. The Settlement Agreement arose from and resolved the 2015 California Action. “The parties to the Settlement Agreement agreed the California State Court ‘shall retain jurisdiction over the action for all purposes to enforce the terms of this Agreement.’ . . . Mr. Forootan is a California resident and SDRT, the registered owner of the majority of the patents, is a (suspended) California company” [56]. This was enough for McHaffie J to conclude that the California court might reasonably conclude that the Federal Court was not a clearly more appropriate forum [57].

McHaffie J also recognized that only the Federal Court can order records of the Canadian Patent Office to be varied, pursuant to s 52 [60]. However, he pointed out that “this does not mean the Federal Court is the only court that can address contractual issues relevant to title” [60]. The 2021 California Action Mr Forootan was seeking a declaration conferring all rights and title in the US and Canadian patents to Mr. Forootan [21], [62]. Prior to SALT, in the purely Canadian context, the Federal Court would often refuse to hear contractual matters related to title. As I understand it, the parties would seek a declaration of ownership in the provincial superior court, and then would take this declaration to the Patent Office, which would rectify the title accordingly, without an order being required. If the Patent Office declined to do so, the prevailing party could then apply to the Federal Court to have the register rectified in light of the judgment of the provincial superior court: see Lawther (1995), 60 CPR(3d) 510 (FC) 511–12. This is all to say that a purely declaratory remedy would be effective in practice.

McHaffie J also noted that the effect of granting the anti-suit injunction would not be to rationalize the litigation, but rather to divide it in two, as it would be litigated in the US in respect of the US patents and in Canada in respect of the Canadian patents [92]. This is even though ownership of both sets of patents is determined by the same Settlement Agreement.

McHaffie J also noted the importance of seeking a stay from the foreign court before seeking an anti-suit injunction: “a Canadian court should only rarely pre-empt a foreign court’s opportunity to address whether an action before them is properly brought: Amchem at pp 930–931. Either a stay should have been unsuccessfully brought in the foreign jurisdiction or there should be compelling reasons for not having done so” [82]. McHaffie J provided a thorough discussion of the caselaw illustrating what might constitute “compelling reasons”: [83]–[87]. He concluded that a compelling case had not been made out on the facts, but it was unnecessary for him to decide whether this was in itself sufficient reason to deny Seismotech’s request, given his conclusion on the main elements of the Amchem analysis.

Finally, there are some general comments that I’d like to highlight [citations omitted]:

[59] Contractual agreements pertaining to intellectual property will frequently cover rights in multiple jurisdictions, and even globally. Contrary to Seismotech’s submission, there is no requirement that the same provisions in the same contract be litigated separately in every jurisdiction in the world in which those intellectual property rights arise. I note that courts in Canada have been willing to interpret contracts as they pertain to international intellectual rights, even where those contracts are made under foreign law. A Canadian court may also be considered forum conveniens in respect of a transborder intellectual property dispute, even where relief is sought pursuant to the laws of the United States. As Professor Vaver summarizes, “IP-related activity that has a real and substantial connection with a country, province, or state can be handled by a court that is a convenient forum, whether or not the defendant accepts or is present within the jurisdiction.”

This is all very reasonable, but it goes considerably beyond the facts at hand. I’ll point out that the UKSC decision in Unwired Planet v Huawei [2020] UKSC 37, holding that a UK court may enjoin the sale of infringing products that incorporate an industry standard if the parties do not enter into a global license for patents covering that standard, has been very controversial: see eg here and here. There is a fear that there will be a race to the bottom, as patentees, and particularly patent assertion entities, will seek a global judgment from a patentee-friendly court. This may be exacerbated by the possibility of “forum selling”, in which courts compete to attract high-stakes litigation by making themselves increasingly patentee friendly. At some level these concerns call into question whether the strong presumption of comity that is reflected in Amchem is sound. There are also many differences between the SEP / FRAND litigation and this case—the validity of the patents is not at issue; infringement is not at issue; global licensing terms are not at issue—though these all go to substantive issues rather than the issues relating to the connection to the forum which are the focus of the Amchem anti-suit injunction analysis.

While I’m not an expert in this area, Seismotech strikes me as a relatively easy case; given the strength of the connection to California and the nature of the dispute, the California court is arguably more appropriate than the Canadian Federal Court. More contentious patent cases, such as the SEP / FRAND litigation, raise issues that may pose more of a challenge.

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