Patent Act Trumps International Sale of Goods Act

Dec 12 2014
  1. On March 7 (amended June 12), 2013, Procter & Gamble Company and Procter & Gamble Inc. (“P&G”) brought an application in the Superior Court of Justice for inter alia a declaration that Brushpoint Innovations Inc. (“Brushpoint”) breached a settlement agreement with P&G related to allegations of patent infringement.
  2. The primary issue on the Application was whether Brushpoint, in conducting business from Canada with third parties located solely within the USA, for the manufacture, distribution and resale of products solely within the USA, was a breach of the restrictive covenant in the settlement agreement. The restrictive covenant, which paraphrases s.42 of the Patent Act states, in part, that Brushpoint shall “not make, construct, use, or sell or induce others to make, construct, use, or sell the products, in Canada, while any of the Patents are in force.”
  3. P&G argued inter alia that:

(1) The restrictive covenant should be interpreted such that the words “in Canada” modify each of the verbs and should read that Brushpoint will “not in Canada make, construct, use or sell or in Canada induce others to make, construct, use or sell the products,” regardless of where the products are actually made, constructed, used or sold;

(2) Purchase orders issued from Canada to the USA for products to be manufactured, distributed and sold in the USA, were contracts made in Canada and thus attracted the application of the International Sale of Goods Act (“ISGA”).

  1. Brushpoint, in turn, argued that the restrictive covenant was clear and unambiguous and that the language of the restrictive covenant, which paraphrased s.42 of the Patent Act, merely restricted Brushpoint from making, constructing, using and selling in Canada the products in issue and from inducing others to do the same, and that any ambiguity imported by P&G’s interpretation should be resolved by a review of the factual matrix surrounding the formation of the contract. Brushpoint also submitted that the factual matrix required the application of Canadian domestic law (i.e., the Patent Act) and that the ISGA was inapplicable.
  2. The implications of the application are far reaching and critical to the field of Intellectual Property litigation. Very few patent actions ever go to trial as most matters are settled between the parties. Commonly, settlement agreements include language which paraphrase s.42 of the Patent Act in order to define restrained activities.
  3. If the Court were to find that the language of the restrictive covenant precludes Brushpoint from being able to issue purchase orders or instruct foreign nationals in respect of the manufacture, distribution and sale of products abroad, even though said products never enter Canada, then the proverbial “flood gates” would be opened to allow patent owners to circumnavigate the Patent Act and the intentions of the parties at the time settlement agreements are entered into, in order to obtain injunctions which may not otherwise be available, in order to restrain third parties from carrying on business, from Canada, anywhere else in the world.
  4. Having considered the facts and evidence before him, the Application Judge found inter alia:

(1) That the restrictive covenant was clear and unambiguous in that it restricts Brushpoint from making, constructing, using or selling the products in Canada or inducing someone else to do so. In order to find that the words “in Canada” apply to the verb induce, it would have to immediately follow that word and then specify that the prohibited dealing with the products could occur “anywhere in the world”. The absence of those latter words made the interpretation proposed by P&G nonsensical unless the Court agreed to read those words into the clause, which it was not prepared to do in the overall context of the agreement;

(2) Even if the clause is ambiguous, the factual matrix clearly favours an interpretation that what was intended was to prevent Brushpoint or someone induced by Brushpoint from dealing with the products in Canada in contravention of P&G’s patents;

(3) That Brushpoint did not induce its sales agent, in Canada, to sell the product in the U.S.A. and did not induce, in Canada, its manufacturer of the product situated in New Jersey, to make and sell the product in the U.S.A.;

(4) That there was no evidence establishing on a balance of probability that the product was made, constructed, used or sold in Canada;

(5) That article 3 of the ISGA has no application to the issues in this case.

  1. The findings of the application judge demonstrates the Court’s understanding of the implications of conducting business abroad from Canada, the interplay of domestic and international laws and provides a sensible commercial result as between the parties that supports the intention of Parliament in enacting the Patent Act.

For more information, please contact author Kenneth Hanna.

This article is for information purposes only and does not constitute legal or professional advice.

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Tags: IP Litigation, Kenneth Hanna, Patent Infringement