In Lauren International, Inc. v. Reichert, the
Ontario Superior Court was asked to interpret the terms of a
1989 Agreement (the Agreement) to determine whether a licensee
was obligated to make royalty payments for sales of products in
jurisdictions in which the relevant patent rights had
The Agreement provided that the obligation to make royalty
payments would end "on the expiry of the
Principals' Patent Rights." The
Principals' Patent Rights included all interests in the
patents and patent applications listed in the schedule to that
agreement, and included patent rights that the licensee, Lauren
International, had never used.
Reichert, the Licensor, argued that royalty payments should
be paid for sales of all products by the Licensee worldwide,
for as long as any of the scheduled patents remained valid in
at least one jurisdiction. The Licensor submitted that
this was the case even if none of the remaining valid patents
related to an actual product being sold.
Justice Smith found that the plain and ordinary meaning of
the words of the Agreement accorded with the interpretation
submitted by the Licensee, namely that its obligation to pay
royalties only extended to sales in jurisdictions where the
patent for the product sold remained valid. The parties
were aware that the list of patents had been applied for in
different jurisdictions, had different commencement dates and
related to different products. The parties'
reasonable expectations, and the only commercially reasonable
interpretation of the Agreement, were that the right to receive
royalty payments for sales in a particular jurisdiction
terminate when the patent rights in that jurisdiction
expire. Thus, when the Licensor's patent rights
end, so do any rights to receive royalties. The Licensee
was, therefore, entitled to stop making royalty payments as the
The final issue was one of waiver. The Licensee had
been paying royalties based on its worldwide sales and
therefore had paid royalties that were not required. The
Licensee submitted that this was merely an administrative
oversight and that the excess payments of $69,744 were only a
very small percentage of the total royalties paid (2.4%).
Smith J. found that the Licensee's conduct was
inadvertent and therefore did not evidence the clear intention
necessary to show a waiver of rights. Furthermore, the
Agreement stated that any waiver of rights was to be made in
writing, and no such document existed.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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