Did You Unintentionally Just Settle? A Cautionary Reminder To Be Objectively Clear In Your Negotiations

The Federal Court recently found that parties to a patent infringement action settled the litigation, and enforced an agreement, despite an ongoing dispute between them as to the terms of settlement. Justice Brown's decision in Betser-Zilevitch v Nexen Inc et al, 2018 FC 735, is a good reminder that parties may reach a settlement informally and unexpectedly. The key message is that if a party does not want to be bound unless and until it agrees to all terms that it subjectively considers to be essential to a deal, then it must make that objectively clear in every settlement communication.

The Court may impose a settlement where: (a) objectively, the parties mutually intended to create legal relations, (b) there was consideration flowing in return for a promise, (c) objectively, the terms of agreement were sufficiently certain, and (d) there is a matching offer and acceptance on all terms essential to the agreement.

In the case at hand, Betser sued Nexen for infringement of a Canadian patent relating to equipment used to inject steam into and extract heavy oil from oil sands. He alleged that Nexen and the other defendants used technology to extract heavy oil at an oil sands project in Alberta that infringed his patents. Nexen counterclaimed for a declaration of invalidity and non-infringement. Betser also owned a United States patent corresponding to the Canadian patent in issue.

After the parties exchanged a number of settlement proposals, Betser made an offer to settle on a few basic terms:

Betser would grant Nexen a fully paid-up license to make, construct and use the inventions in the two patents at issue. Betser would release the defendants from all liability with respect to the claims asserted in his Statement of Claim. The parties would discontinue their respective claims and counterclaims. Nexen would execute a confidentiality agreement in a form acceptable to Betser, to keep confidential the terms of settlement. Nexen responded to this offer by indicating that it was "prepared to agree in principle to the settlement terms [proposed]", and advised that it would prepare a draft settlement agreement incorporating those terms, "as well as other standard settlement terms", for Betser's review. Shortly thereafter, when advising the Court (with consent of Nexen) of the status of the action, Betser's counsel wrote "a settlement has been reached, subject to formalization, review and execution by the parties of a formal settlement agreement."

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