IP monitor: Anti-suit injunctions and the importance of forum selection in commercial IP agreements

The Federal Court’s recent decision Seismotech Safety Systems Inc. v Forootan, 2021 FC 773 (Seismotech) provides a cautionary tale for parties collaborating to commercialize technology. The decision highlights both (a) the importance of agreeing at the outset to a dispute-resolution forum and (b) the challenges that can arise when the choice of forum becomes a ground of dispute unto itself.

Background

Seismotech involved a routine business relationship whereby two companies and their principals, one located in California and the other in British Columbia, entered into an arrangement to commercialize an invention. In the Purchase and Sale Agreement (the PSA), the BC company (Seismotech) assigned several Canadian, US, and other patents and patent applications to the California company (Smart Disaster Response Technologies Inc. (SDRT)). The PSA specified that the agreement would be governed by and construed in accordance with the laws of Canada (a choice of law clause); however, it did not stipulate which court the parties would litigate in if a dispute were to arise (a forum selection clause).

Eventually, the business relationship deteriorated. In the absence of a forum selection clause in the PSA, various parties commenced several lawsuits against each other in several jurisdictions:

• Mr. Forootan (the former president of SDRT) sued SDRT, the inventor of the patents, and others in California State Court, alleging breach of fiduciary duty, breach of contract, and fraud. This led to a settlement agreement enforceable in California State Court.
• Later, Mr. Forootan sued SDRT, the inventor, and others for breach of the settlement agreement in California District Court and California State Court, seeking monetary relief and a declaration that the patents be transferred to Mr. Forootan.
• Seismotech sued Mr. Forootan and SDRT in the BC Supreme Court seeking a declaration that the assignment of the patents to SDRT in the PSA is void. Seismotech also sued Mr. Forootan and SDRT in the Federal Court of Canada in respect of only the Canadian patents. Seismotech sought the same relief in the Federal Court as in the BC Supreme Court, as well as an order directing the Commissioner of Patents to record Seismotech as the registered owner of these patents. Further or in the alternative, Seismotech sought a declaration that part of the settlement agreement was not enforceable against SDRT, Seismotech, or the Canadian patents.

These facts, and the court’s reasons in Seismotech, illustrate that transborder intellectual property disputes may have a connection to many jurisdictions. Justice McHaffie noted that a Canadian court could be an appropriate forum for such a dispute, even when relief was sought pursuant to US law, and that the Federal Court in particular would have had jurisdiction to issue declaratory relief under the California settlement agreement in this case regarding the Canadian patents. However, McHaffie J. also found that the California State Court might reasonably conclude that there was no more appropriate forum to address the dispute as well.

The anti-suit motion

Against this backdrop, the Seismotech decision concerned a motion for an anti-suit injunction from the Federal Court that would have prevented Mr. Forootan from starting or continuing litigation regarding the Canadian patents in any other court (including the California proceedings). Seismotech argued that such an injunction would protect the Federal Court’s statutory jurisdiction under section 52 of the Patent Act and that it would prevent a multiplicity of proceedings. 

Justice McHaffie rejected Seismotech’s arguments, finding it had failed to show that this was one of the “rare circumstances” where an anti-suit injunction was appropriate.¹ He dismissed the motion, thereby refusing to interfere with Mr. Forootan’s lawsuit in California State Court. 

Thinking about forum selection

In an increasingly globalized world, Seismotech illustrates the risk that parties will find themselves fighting on two fronts: first, on the merits; and second, on the forum where those merits will be decided. The risk of becoming mired in procedural disputes of this kind may be reduced by planning for the dispute-resolution process at the outset of an agreement, including through the use of forum selection clauses. 

The choice of forum for disputes under a commercial agreement is relevant not only between but within countries. For example:

• The Canadian Federal Court generally does not have jurisdiction to hear purely contractual disputes between private parties. However, the Federal Court does have jurisdiction to determine contractual issues that arise within one of its spheres of jurisdiction, such as to determine patent title issues (see SALT Canada Inc. v Baker, 2020 FCA 127). 
• The Federal Court shares concurrent jurisdiction with provincial superior courts on some patent-related issues, but has exclusive jurisdiction for others. For example: while a provincial superior court can invalidate a patent as between the parties, only the Federal Court has jurisdiction to invalidate a Canadian patent in rem. 
• The Federal Court generally has more experience with the intricacies of patent law than the provincial courts, as it hears the majority of cases concerning patents and maintains regular engagement with the intellectual property bar. This can lead to more efficient proceedings involving patent issues.

In some cases, parties may choose to avoid court altogether and stipulate that arbitration will govern their disputes. Through arbitration, the parties have control over legal procedure such as timelines and the exchange of evidence. Arbitrations are also generally confidential and the parties can set out how the decision maker is selected. Typically there is no right of appeal. For more information on the potential advantages of arbitration in intellectual property disputes see Arbitrating disputes in the pharmaceutical, life sciences and healthcare sector in the era of the COVID-19 pandemic.

Conclusion

Commercial IP agreements are becoming increasingly prevalent as we see an increased focus on innovation and globalization. Companies should turn their minds to dispute resolution, choice of law and forum selection up front, and consider setting out the terms in any agreement to reduce the risk of litigating a multiplicity of proceedings in the future.