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CIVIL PROCEDURE - Injunctions - Considerations affecting grant - Balance of convenience

Friday, January 08, 2021 @ 6:09 AM  

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Appeal from an order dismissing a motion for an interlocutory injunction. The appellants, Loops L.L.C. and Loops Flexbrush L.L.C. (Loops) were both limited liability companies incorporated pursuant to the law of Delaware. The respondent Maxill Inc. (Maxill Canada) was an Ontario company. Loops commenced an action against Maxill Canada in 2012 for patent infringement with respect to a toothbrush. The parties entered into a confidential settlement agreement (Agreement) at mediation in which Maxill Canada agreed not to import, export, make, have made, sell or offer for sale a particular toothbrush. The Agreement further provided that Maxill Canada was not to indirectly or directly assist another party in attacking the validity of the Loops patent. The impact of the settlement was to be global. Loops commenced an action in 2015 alleging that Maxill Canada breached the Agreement by selling toothbrushes prohibited by the Agreement. Loops commenced another action in Utah in 2017 which named Maxill Canada as one of the defendants. Maxill Ohio commenced an action in late 2017 for a finding that the Loops patent was invalid. The two U.S. actions were consolidated. A motion by Maxill to stay the consolidated proceedings was refused. Loops brought a motion for an order prohibiting Maxill Canada from challenging, either directly or indirectly, the validity of its U.S. patent. The motion relied on the no-challenge clause in the Agreement. The motion judge found that Loops had not established a strong prima facie case and dismissed the motion. The judge found that the challenge to the validity of the patent was by Maxill Ohio, which was a separate entity than Maxill Canada.

HELD: Appeal allowed. The motion judge erred in failing to find a strong prima facie case. Contrary to the finding of the motion judge, the presence or absence of a strong prima facie was not determined by an understanding that Maxill Canada, as the only Maxill signatory to the Agreement, was separate and removed from the proceedings ongoing in the U.S. She erred in finding that it was not a party to the U.S. proceedings. The motion judge also erred in finding that, when Maxill Canada was sued for infringement of the applicable patents and breach of the Agreement, a defence of invalidity of the patents was open to the Maxill interests. There was a strong prima facie case that the no-challenge clause in the Agreement should be enforced. By adopting the reasoning that she did, the motion judge allowed Maxill Canada to do the very thing it agreed it would not do in its settlement of the original Federal Court action. The irreparable harm was the loss of the ability to rely on the no-challenge clause. It would be better to determine whether the no-challenge clause could be relied on before proceeding further. The balance of convenience favoured Loops. An interlocutory injunction was granted prohibiting Maxill Canada from challenging directly or indirectly the validity of the U.S. patent.

Loops, L.L.C. v. Maxill Inc., [2020] O.J. No. 5078, Ontario Superior Court of Justice - Divisional Court, K.E. Swinton, T.R. Lederer and M.A. Penny JJ., November 20, 2020. Digest No. TLD-January42021009