Court of Appeal refuses to stretch the meaning of a settlement agreement for H&M in patent dispute

In a recent dispute involving H&M, the Court of Appeal has held that the clothing company could not challenge the validity of a patent as a defence to Stretchline's claim for breach of contract, having previously settled all issues relating to the dispute.

Stretchline's patent sought to protect their underwiring technology which was used in clothing garments. A dispute had previously arisen between the parties however this had been resolved by way of settlement agreement some years earlier. 

Stretchline became suspicious that H&M was breaching the terms of the agreement and, following a number of tests, a further action was brought against them for patent infringement and breach of contract. In January 2015, Mr Justice Sales dismissed both the defence and counterclaim entered by H&M which submitted that the products in question were outside the scope of the patent and secondly that the patent was invalid. Mr Justice Sales held that all disputes between the parties, including the validity of the patent "were definitively settled between them by the terms of that agreement".  In essence, H&M had barred itself from challenging the validity of the patent by agreeing the terms of the settlement agreement.

H&M appealed this decision. The Court of Appeal was clear it should approach the terms of the settlement agreement in the same way as any other contract – by looking at the intention of the parties in all the circumstances. The Court of Appeal subsequently held that Mr Justice Sales was correct in his view that a reasonable person would have understood the agreement to be in full and final settlement of all claims.  In particular, the agreement contained a general release clause which was sufficiently broad to encompass a challenge to the validity of the patent.

H&M argued that the test used to establish the infringement was different from that used in the earlier proceedings and was therefore outside the scope of the patent and terms of the settlement agreement. However, the Court of Appeal rejected this argument stating there was nothing in writing that required the scope of the patent be determined by a particular test and use of a different test was not outside the contemplation of the parties.

This therefore comes as a warning to all parties to carefully consider the wording of settlement agreements. The parties had incorporated sufficiently broad terms which made clear their intentions to dispose of all claims "relating to the subject matter anywhere in the world." However, this ultimately restricted H&M's ability to defend its later position when new circumstances arose. Furthermore, both of the Courts were clear that the parties should be bound by what they had previously agreed and were therefore reluctant to intervene.  

Read the full case report