Stretchline Intellectual Properties Ltdv H&M Hennes & Mauritz UK Ltd

In these proceedings the claimant (“Stretchline”) complains that the defendant (“H&M”) has infringed its patent number GB 2,309,038 (“the Patent”) and acted in breach of the terms of an agreement entered into between the parties by way of compromise of earlier proceedings for infringement of the same patent (“the settlement agreement”). The central question to which this appeal gives rise is whether H&M is precluded by the settlement agreement from challenging the validity of the Patent in these proceedings. The judge held that it was and struck out those parts of the defence and counterclaim which raised that issue. H&M now appeals against that decision.

The Patent describes an invention for making the fabric tubes which are used to encase the under-wires used in garments such as brassieres and swimming costumes. A particular problem with such under-wires is that their ends sometimes penetrate the tubes which encase them and so cause considerable discomfort to the wearers of the garments into which they are incorporated. The Patent claims to solve this problem by providing a penetration barrier which is created by weaving into the fabric a fusible yarn, that is to say a yarn that melts in the fabric drying process, bonds to the other fibres in the fabric and solidifies when cooled.

In July 2009 Stretchline made various test purchases of brassieres which H&M was selling through its stores. Analysis of those garments led Stretchline to believe that H&M was infringing the Patent and accordingly it began proceedings for infringement. H&M defended the claim in a conventional way, disputing that its garments fell within the scope of the Patent, maintaining that the invalidity of the Patent gave it a defence to the claim and counterclaiming for the Patent’s revocation. At about the same time, Stretchline also began proceedings against another H&M group company based in the US alleging infringement of its equivalent US patent.

A mediation took place in late May 2011 and this led in due course to the settlement agreement between the parties to both the UK and the US proceedings. The agreement included the following recitals:

Clause 1 included the following important definitions:

The parties’ obligations were set out in clause 3 which provided, so far as material:

Clause 4.1 contained a release in these terms:

Clause 5.1 contained an agreement not to sue:

Finally, clause 6.1 contained an agreement to dispose of the proceedings by way of a stay:

I must return to the provisions of the settlement agreement later in this judgment in addressing the submissions made by the parties in this appeal but at this stage would make the following general points. First, it is, I think, clear that the parties intended by this agreement to compromise their dispute on a worldwide basis. As recital C explains, they were endeavouring to bring finality to the dispute worldwide in respect of all of the actual and potential claims of the parties in relation to the products in issue.

Second, H&M agreed to pay by way of costs (but not damages) the sum of £235,000 in full and final settlement of the claims made against it by Stretchline.

Third, H&M agreed that it would not in the future do any “Prohibited Act”, that is to say, deal in any way in the UK, the US, Germany, France, Belgium or Italy in any product falling within the claims of the various patents held by Stretchline in those territories for so long as those patents remained enforceable.

Fourth, Stretchline and H&M entered into the supply agreement referred to in clause 1.15 under the terms of which H&M agreed to purchase a minimum amount of Stretchline’s wire casing product made in accordance with the Patent. In addition, H&M was permitted to sell garments incorporating wire casing products which contained only a low percentage of fusible yarn, this being the “H&M Low Volume Fabric” defined in clause 1.2.

Fifth, and importantly, the parties entered into the settlement agreement in full and final settlement of their respective claims. Moreover, they each agreed not to pursue any further proceedings relating to or arising from those claims. These terms are embodied in clauses 3, 4 and 5 and are central to the issues arising upon this appeal, as I will explain.

There matters rested until, in mid-2012, Stretchline became suspicious that H&M was once again selling brassieres incorporating under-wire casing components made in accordance with the claims of the Patent. It purchased and tested various sample garments and then raised its concerns with H&M. On this occasion, the parties were unable to resolve their differences and accordingly, in March 2013, Stretchline began these new proceedings.

Stretchline originally set out in its particulars of claim two inconsistent claims. The first sought enforcement of the settlement agreement but the second asserted that H&M had infringed the Patent both by its activities in 2012 and by its activities the subject of the first action. This approach was said by Stretchline to reflect its uncertainty as to whether it could successfully maintain that H&M had, by its conduct, repudiated the settlement agreement. Stretchline therefore sought and in due course was given disclosure, and in the light of that disclosure it elected not to assert that the settlement agreement had been repudiated. From this point Stretchline’s position was that the settlement agreement was binding and valid and that, by selling brassieres falling within the scope of the Patent after the date of the agreement, H&M had acted both in breach of the agreement and in infringement of the Patent. But it did not seek to maintain a claim for infringement of the Patent in respect of H&M’s activities prior to the settlement agreement.

H&M responded to these claims by way of defence and counterclaim. It contended that it had not acted in breach of the settlement agreement or infringement of the Patent and that was so for two reasons: first, its brassieres did not fall within the scope of the Patent; and second, the Patent was invalid.

In August 2014, Stretchline issued this application seeking, in effect, an order striking out those parts of H&M’s pleaded case which sought to raise the issue of the Patent’s validity. At the hearing before Sales J, Stretchline maintained that the issue of validity had been compromised by the terms of the settlement agreement and that H&M was precluded by the terms of that agreement from raising the issue of validity in any way in response to the claims. H&M resisted the application, contending that there was nothing in the agreement which precluded it from seeking revocation of the Patent, and that it was in any event entitled to raise the issue of validity by way of defence both to the claim for infringement and to the claim for breach of the agreement.

Sales J preferred the submissions made on behalf of Stretchline and concluded that the settlement agreement did indeed preclude H&M from raising the issue of invalidity in these proceedings. He held at [22]:

In so finding, the judge rejected the suggestion that a distinction could be drawn between the defence and the counterclaim. As he put it at [30]:

After dealing with an issue of waiver which is not pursued upon this appeal, the judge then turned to a submission advanced on behalf of H&M, apparently relatively late in the day, that there had been a change in the way in which Stretchline was seeking to put its case as to the scope and effect of the Patent, and that in these circumstances it would be unfair for the court to construe the settlement agreement in the manner for which Stretchline contended. In that regard H&M placed particular reliance on the decision of the House of Lords in Bank of Commerce and Credit International SA v Ali [2001] UKHL 8, [2002] 1 AC 251 (“BCCI”). This found no favour with the judge either, for reasons which he summarised at [42]:

The judge therefore struck out all those parts of H&M’s defence and counterclaim which sought to challenge the validity of the Patent.

On this appeal Mr Guy Burkill QC, who appears with Mr Geoffrey Pritchard on behalf of H&M, as he did below, contends the judge fell into error at every stage of his analysis. In broad outline, he submits that the judge was wrong to conclude that the settlement agreement precludes H&M from raising the issue of the Patent’s validity either by way of counterclaim or defence; alternatively, if the agreement precludes H&M from raising the issue by way of counterclaim, it must nevertheless be entitled to raise it by way of defence, and to do so by way of defence both to the claim for breach of the agreement and to the claim for infringement. Moreover, says Mr Burkill, Stretchline has materially altered its position as to the scope of the Patent, and in these proceedings is now contending that the monopoly it confers is much broader than was or could have been foreseen at the date of the settlement agreement. Further, continues Mr Burkill, the parties cannot be taken to have intended by the settlement agreement that Stretchline could thereafter advance whatever fancy interpretation of the Patent it chose without imperilling the Patent’s validity, and it would be manifestly unjust were the agreement to be interpreted in such a way as to allow this to happen.

It is, I think, convenient to deal with these submissions in the following way: first, to consider the settlement agreement and whether this prevents H&M from raising the issue of validity by way of counterclaim or by way of defence to the claim for breach of the agreement itself; second, to consider whether the position in relation to the claim for infringement of the Patent is any in way different from that in relation to the claim for breach of the agreement; and third, to address the submission that Stretchline is now contending for a materially different interpretation of the Patent, and, if it is, to consider the consequences of it so doing.

I therefore begin by considering the settlement agreement and whether it precludes H&M from raising the issue of the validity of the Patent by way of defence or counterclaim in response to a claim that it has been selling products in breach of its terms.

Of course a settlement agreement such as this must be construed in just the same way as any other contract. The aim is to ascertain what a reasonable person would have understood the parties to mean by using the language of the agreement against the background which would reasonably have been available to them at the time. I have summarised the relevant background earlier in this judgment so I now turn to the provisions of the agreement itself. The following are, I think, particularly relevant.

First, the recitals say in terms that the parties intended by the settlement agreement to bring to an end the whole dispute between them, and to do so on a worldwide basis. Further, in referring to the denial by H&M of liability and the claims the parties had or could have asserted, the recitals are plainly cast in terms broad enough to encompass the challenge by H&M to the validity of the Patent and its foreign equivalents.

Second, clause 3.1 provides a contractual framework for the regulation of H&M’s activities going forward. H&M agreed that from the date of the agreement (and subject to the H&M Low Volume Fabric and the Sell-Through Period) it would not deal in any way in any products falling within the scope of the Patent or its foreign equivalents in any territory for which such a patent had been granted and for so long as the relevant patent remained in force in that territory. It also agreed to pay to Stretchline the Settlement Sum of £235,000 in full and final settlement of all claims (present and future) “in relation to” the subject matter of the earlier proceedings.

Third, clause 4.1 contains a general release and it is cast in the broadest of terms. The parties agreed to the terms of the settlement agreement in full and final settlement of all possible claims relating to the subject matter of the proceedings anywhere in the world. In my view this is plainly wide enough to encompass the allegation of invalidity of the Patent made by H&M both in its defence and in its counterclaim.

Fourth, the agreement not to sue contained in clause 5.1 is also drawn in very general language. So far as material, H&M agreed that it would not begin or pursue any proceedings “relating to or arising from” the Claims, as defined. Mr Burkill contends that the wording of this clause together with that of the release in clause 4.1 is apt to describe the former infringement proceedings but that it does not extend to revocation proceedings, and still less the deployment of invalidity as a defence. I disagree. I have no doubt that this phrase is broad enough to encompass a defence that the Patent is invalid and a counterclaim for its revocation.

Fifth, the view to which I have come as to the proper interpretation of clauses 4 and 5 is reinforced by clause 6, by which the parties agreed to a stay of the proceedings save for the purpose of carrying the terms of the settlement agreement into effect. Here again the parties have made clear their intention to dispose of the proceedings (including the defence and counterclaim and all of the issues they raise) on the terms of the agreement.

In my judgment the inescapable conclusion from the foregoing is that the reasonable person would have understood that the parties intended by the settlement agreement to compromise all issues in dispute between them, including the issue of the validity of the Patent, and to substitute for their claims of, respectively, infringement of patent and invalidity or revocation, a contractual arrangement which would from that time regulate the dealings of H&M in products falling within the scope of the Patent and its equivalents in other jurisdictions.

I believe the parties recognised and agreed that, as from the date of the settlement agreement and for so long as the Patent remained in force, any dealings by H&M in products falling within the scope of the Patent would amount to an actionable breach of the agreement. Of course the Patent might expire through effluxion of time or because of a decision by Stretchline not to renew it. But I am entirely satisfied that an essential component of the agreement was the compromise by H&M of its right to challenge the validity of the Patent either by way of counterclaim or defence. It agreed not to exercise that right either by way of answer to a claim for breach of the agreement or in any other way.

Subject to a consideration of the matters to which I must come later in this judgment, it therefore follows that H&M has agreed not to meet a claim that it has acted in breach of the agreement by selling products falling within the scope of the Patent by contending (whether by counterclaim or defence) that the Patent is invalid, and the judge was right so to hold.

It is an interesting feature of this case that Stretchline has not confined itself to a claim that H&M’s activities amount to a breach of the settlement agreement and that it also claims that these activities amount to an infringement of the Patent. Mr Nicholas Caddick QC, who has appeared on this appeal on its behalf with Mr Andrew Norris, as he did below, contends that there is nothing in the settlement agreement which prevents it from so doing although, in response to questions from the Court, he had some difficulty explaining how such a claim could confer upon Stretchline any material benefit over and above that already conferred by its claim for breach of contract.

Mr Burkill did not accept that Stretchline could properly pursue an infringement claim, but nor did he invite us to find that it could not. He submitted that H&M has now found itself sued not just for breach of contract but also for infringement of patent and that in these circumstances it must be entitled to avail itself of the statutory rights conferred upon it by s.74(1)(a) of the Patents Act 1977 to put the validity of the Patent in issue by way of defence, and by s.74(1)(d) of that Act to put its validity in issue by way of counterclaim. In an echo of Mr Caddick’s submission, he says there is nothing in the agreement which precludes it from so doing.

This court therefore finds itself in a rather unsatisfactory position. We must consider whether the judge was right to hold that H&M cannot meet the claim for infringement with a defence and counterclaim that the Patent is invalid. But it seems to me that the logically anterior question is whether Stretchline is entitled to bring a claim for infringement in the first place, and that is a question which, for one reason or another, neither party has asked us to decide. However, it seems to me that the two issues are so intimately tied together that it makes little sense to consider the one but not the other, and I shall therefore express my views on both of them.

There can be no doubt that Stretchline has, by entering into the settlement agreement, compromised the earlier proceedings, accepted the settlement sum in full and final settlement of its claims in those proceedings and any other claim relating to the subject matter of that litigation, and agreed not to pursue further proceedings arising out of or relating to those proceedings. Accordingly if, after the date of the settlement agreement, H&M had continued selling the very same products the subject of those proceedings, Stretchline could only have sued it for breach of the agreement, and I understood Mr Caddick to have accepted that was so. But the terms to which I have referred and the general structure of the agreement make clear that its scope extends a good deal further and reflects the intention of the parties that henceforth any dealings by H&M in products falling within the scope of the Patent and its equivalents in other jurisdictions should be regulated by the agreement and not by resort in all of those jurisdictions to claims for infringement, which claims would no doubt be met with defences of invalidity and counterclaims for revocation. Such an array of claims and counterclaims is precisely what the parties intended to avoid by entering into this agreement.

For all of these reasons I would therefore hold that the present proceedings do relate to or arise out of the original claims and that Stretchline is precluded by the settlement agreement from pursuing its claim for infringement of the Patent in parallel with its claim for breach of contract.

As I say, that is not, however, an issue which either party has asked us to decide and so I go on to consider whether, on the assumption that Stretchline can properly pursue its infringement claim, H&M is entitled to rely upon the alleged invalidity of the Patent, and to do so either by way of counterclaim or defence. In my judgment and subject to the point to which I shall shortly come, it is not so entitled and the judge was once again right so to hold. It has expressly compromised its ability to assert that the Patent is invalid by entering into the settlement agreement on all of the terms to which I have referred in considering the claim for breach of the agreement itself. I of course recognise and accept that s.74 of the Act confers a right to challenge the validity of a patent by defence or counterclaim, but H&M has bound itself by the terms of the settlement agreement not to exercise that right against Stretchline in relation to the Patent.

Claim 1 of the Patent requires the use of fusible yarn within a tubular fabric “whereby the fusible yarn is arranged within the fabric tube so that it is capable of forming a penetration barrier”.

The body of the specification of the Patent explains that by the term fusible yarn the patentee means yarn which can be melted at a predetermined temperature (less than 100°C) and cooled so that it adheres to the yarn which supports it. The specification continues that fabric tubing produced in accordance with the invention has a durable inner lining of fusible yarn that is extremely resistant to penetration by under-wires. A little later it elaborates that various tests have been carried out to demonstrate the increased resistance to penetration afforded by the tubular fabric of the invention compared to known fabrics and it then proceeds to describe the results of a particular test carried out using a strain gauge on an “L+M Sewability Tester” with a “90’s medium ball needle” to represent an under-wire. This tester and needle were, it is accepted, well known at the date of the Patent.

In the course of the earlier proceedings Stretchline’s solicitors explained in a letter to H&M’s solicitors dated 4 April 2011 that Stretchline had tested the garments of which it was complaining using the L+M sewability tester and method described in the Patent and that these tests did, in its view, establish infringement. H&M says it was against this background and this approach to the scope of the patent monopoly and associated test that it compromised those earlier proceedings.

By contrast, H&M continues, in the present proceedings Stretchline has adopted a markedly different approach to the scope of its patent monopoly and has now measured the resistance to penetration of the fabric in the garments of which it complains using a quite different test called a “pin penetration test” and further, that this test produces results which are simply not comparable with those produced using the L+M sewability test of the Patent. In this connection it refers to the following passage in a letter from Stretchline’s solicitors dated 21 March 2013:

Founding himself on this passage, Mr Burkill submits that it is reasonable to infer first, that Stretchline cannot show infringement using the L+M sewability test of the Patent and second, that the tests now proposed are such as to include within the Patent monopoly a wider range of fabrics. Further, he continues, if the scope of the Patent monopoly is to be determined using a new test then so too should the Patent’s validity.

Mr Burkill has elaborated this submission as follows. He says that the question whether H&M’s garments have a penetration barrier within the meaning of the claim will be central in this case. It is for Stretchline to show not only that H&M’s garments do have one, but also that the prior art did not. There is therefore a classic squeeze between non-infringement and validity. Moreover, H&M could not have foreseen at the date of the settlement agreement that this new and broader construction of the Patent would be advanced against its products. In all these circumstances there is no proper basis for shutting out the defence of invalidity.

Mr Burkill has sought to draw support for these submissions from the decision of the House of Lords in the BCCI case, just as he did before the judge. In that case the House of Lords recognised that a party may, in a compromise agreement supported by valuable consideration, agree to release claims or rights of which he is unaware, if appropriate language is used to make plain that that is his intention. But this requires very clear language. As Lord Bingham explained at [10]:

Lord Bingham continued at [19]:

It is, I think, important to note that in both of these passages Lord Bingham emphasised that the mere fact that a party was not actually aware of the possibility of a claim of the kind in issue is not enough to escape from the terms of a general release. Much the same point emerges from this passage in the judgment of Lord Nicholls (at [27]):

But that cannot be taken too far. The aim is always to determine what the parties are reasonably to be taken to have meant to release by the words they chose and, as Lord Nicholls went on to explain at [28]-[29], the circumstances will often suggest that the parties are reasonably to be taken to have intended to release only those claims, known or unknown, which relate to the particular subject matter under consideration by them at the time:

Drawing the threads together, Mr Burkill submits that the consequence of the judge’s order is that H&M can now deploy whatever fancy new construction of the claim it likes without imperilling the Patent’s validity. That is not a consequence that H&M foresaw or ought to have foreseen, or that it would have agreed to had it been raised fairly and squarely when the settlement agreement was signed. At most, H&M can only have been taken to have surrendered its validity attack on the basis of the claim construction then understood by the parties, that is to say a resistance to penetration as determined by the L+M sewability test.

Attractively though Mr Burkill has presented these submissions, I am unable to accept them. I say that for the following reasons. First, it is (was always) well arguable that the Patent does not require the presence of a penetration barrier to be determined by the use of the L+M sewability test. True it is that the body of the specification contains a description of a preferred embodiment in which that test is used to determine the resistance to penetration of fabric made in accordance with the invention, but there is nothing in the body of the specification or in the claims to say that this test must be used. To the contrary, the claims are cast in general language and the teaching of the specification is simply that the fabric tubing of the invention is over twice as resistant to under-wire penetration as conventional fabric and that it retains this resistance after repeated washing in a tumble drier at a normal washing temperature. Accordingly there are (and were always) powerful grounds for saying that the skilled person would consider that this resistance could be measured using any conventional test which might from time to time be used for this purpose over the lifetime of the Patent.

Second, I do not accept that the use of the pin penetration test to determine the resistance of a fabric to penetration by an under-wire was outside the reasonable contemplation of H&M at the time of the settlement agreement. Despite the energetic submissions made by Mr Burkill to that effect, there is simply no evidence to suppose that was so. Indeed such evidence as there is before the court is to the contrary. In that regard Mr Caddick took us to a number of H&M’s disclosure documents which show that before the date of the settlement agreement H&M and its suppliers were using a test which is in all material respects the same as the pin penetration test now used by Stretchline in these proceedings, and were doing so in order to determine the resistance to penetration of the fabric under test. Of course, the results obtained using one test method may not be directly comparable with the results obtained using a different test. But that is nothing to the point provided both tests are properly directed to the determination of the same relevant quality of the fabric being tested, namely the resistance of that fabric to penetration by the ends of an under-wire.

Third, there is no satisfactory evidence before the court that H&M entered into the settlement agreement believing that the scope of the Patent must be determined by the L+M sewability test. The earlier proceedings settled at a relatively early stage and certainly before Stretchline had committed itself to arguing for any particular interpretation of the Patent. No formal test had been carried out in the course of and for the purpose of the proceedings and no witness statements or experts’ reports had been produced. I accept that the parties understood that a fabric’s resistance to penetration could be measured using the L+M sewability test but H&M has adduced no evidence to the effect that it entered into the settlement agreement believing that resistance to penetration must be measured using that test.

I am therefore satisfied that the terms of the release are sufficiently broad to preclude H&M from raising the issue of the validity of the Patent in response to Stretchline’s claim in these proceedings and that H&M has not shown that it has a real prospect of establishing at trial that it was unaware and could not have been aware of the possibility of a test such as the pin penetration test being used to determine the resistance to penetration by an under-wire of the fabric tubing incorporated in its garments. In my judgment the parties are reasonably to be taken to have intended that the release should apply to claims of the kind now in issue.

For all of the reasons I have given, I would dismiss this appeal.

I agree.

I also agree.