Federal Court Emphasizes Need for Careful Language in Pleadings and Settlement Offers

The Federal Court (“FC”) recently interpreted the scope of a partial settlement agreement between Allergan Inc. (“Allergan”) and Sandoz Canada Inc. (“Sandoz”) in a dispute concerning Sandoz’s proposed silodosin capsules, which Allergan claims infringe its patent.

In Allergan Inc. v. Sandoz Canada Inc. (2020 FC 1047), the plaintiff brought a motion to enforce what it argued to be a partial settlement agreement in its case against Sandoz. In reasons delivered orally, the Court ultimately found that no agreement was reached by the parties as to the essential terms of a partial settlement. This means that Sandoz can continue to defend by challenging the validity of the patent.

Background

Allergan filed a Statement of Claim on November 23, 2018 alleging that Sandoz’s proposed silodosin capsules infringe its patent. In response, Sandoz filed a defence and counterclaim, the latter of which included detailed invalidity allegations largely focused on the obviousness of the patent.

On October 28, 2020, counsel for Sandoz delivered a copy of a PowerPoint to Allergan, to be used during the direct examination of two of its witnesses. The PowerPoint included reference to the issue of obviousness. Later that day, counsel for Sandoz sent an email to counsel for Allergan, offering to withdraw the counterclaim on a without costs basis. Allergan responded shortly after, that the offer from Sandoz was accepted and Allergan consented to discontinue the counterclaim.

The following day, Allergan’s counsel emailed Sandoz to discuss narrowing the evidence given that the counterclaim had been withdrawn. Counsel to Sandoz responded by stating the invalidity defence remained active and evidence would not be narrowed at all. However, the invalidity allegations were included solely in the counterclaim and not incorporated into Sandoz’s defence.

Allergan contended that the obviousness allegations were removed from the proceeding, at least insofar as they were included in the counterclaim, by virtue of the October 28 email exchange between Allergan and Sandoz. In contrast, Sandoz claimed the offer to withdraw its counterclaim was only intended to remove its claim to in rem relief (i.e., a declaration of invalidity) and did not affect its invalidity defence.

Was a Settlement Agreement Reached?

The Court relied on Allergan v. Apotex (2016 FCA 155), which lays out the requirements of a valid settlement agreement. Among them is that consideration must flow in return for a promise. Further, as an objective matter, the terms of the agreement must be sufficiently certain. It is the responsibility of the parties to achieve certainty in the terms of their agreements and courts will not amend a party’s offer or acceptance to make the terms certain. Inquiry into certainty requires consideration of whether a reasonable person, versed in business, would have understood the exchanges between the parties to indicate an intention to be bound.

The Court reasoned that, standing alone, the exchange could be taken as a binding agreement to withdraw the counterclaim and, by extension, the obviousness issue as well. However, taking into account the context of all of the communication between Allergan and Sandoz, the reasonable objective observer would not have concluded there was a meeting of the minds or that the purported partial settlement agreement was binding. The Court rejected the remainder of Allergan’s arguments as to why the obviousness issue should be left off the table.

Other Comments By The Court

The Court noted that it would have been helpful for Allergan to clarify what was being taken off the table when it consented to Sandoz’s email offering to withdraw the counterclaim. The Court also suggested the problem could have been avoided had Sandoz incorporated the invalidity particulars included in its counterclaim into its defence by reference. Despite Sandoz’s success in having the motion dismissed, the Court declined to award costs as greater care taken in drafting would have avoided the problem.