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 expired.
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 patents expired.
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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