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Licensing & Management of IP Assets Covenant Not to Sue. AIPLA Spring Meeting May 2, 2013 Presented by D. Patrick O’Reilley. Background to Covenants. Emotional Implication of validity Exhaustion Lemelson License to make, covenant to sell, license customer Implied License

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licensing management of ip assets covenant not to sue

Licensing & Management of IP AssetsCovenant Not to Sue

AIPLA Spring Meeting

May 2, 2013Presented byD. Patrick O’Reilley

background to covenants
Background to Covenants

Emotional

  • Implication of validity

Exhaustion

  • Lemelson
    • License to make, covenant to sell, license customer

Implied License

  • Covenant to supplier, sue customer
covenant not to sue
Covenant not to sue

Contractual promise not to sue for infringing acts

  • Non-assertion agreement (difference?)

Judicially enforceable agreement. Already LLC v. Nike Inc., 2013 U.S. LEXIS 602 (Jan. 13, 2013)

Equivalent to a license. Transcorev. Elec. Trans. Consults., 563 F.3d 1271 (Fed. Cir. 2009)

  • “The inquiry focuses on what the agreement authorizes, not whether the language is couched in terms of a license or a covenant not to sue; effectively the two are equivalent.”
  • “the difference [between a license and a covenant not to sue] is only one of form, not substance-both are properly viewed as authorizations”
assignment of covenant
Assignment of Covenant

HilgraeveCorp. v. Symantec Corp., 265 F.3d 1336 (Fed. Cir. 2001).

  • “Symantec also contends that the covenant not to sue for patent infringement . . . is equivalent to a freely transferable license to the patent. This court has stated that ‘licenses are considered as nothing more than a promise by the licensor not to sue the licensee.’ . . . The covenant not to sue does not grant a transferable license to the patent.”
  • License = covenant not to sue, but not covenant not to sue = license
  • Covenant does not grant a transferable license

License is assignable but only with permission of licensor

  • Hapgood v. Hewitt, 119 U.S. 226 (1886); Unarco Indus. v. Kelley Co., 465 F.2d 1303 (7th Cir. 1972)
covenant not to sue1
Covenant not to sue

Does sales by covenantee require marking like a license?

  • Actual or constructive notice required to recover damages for infringement of patent on product. 35 U.S.C. §287
  • In re Yarn Processing Patent Validity Litigation (No. II), 602 F.Supp. 159 (D. N.C. 1984)
    • “Section 287… applies to authorizations by patentee of other persons ... regardless of the particular form these authorizations may take and regardless of whether the authorizations are ‘settlement agreements,’ ‘covenants not to sue’ or ‘licenses.’”
  • Holding approved in Amstead Indus. V. Buckeye Steel Castings, 24 F.3d 178 (Fed. Cir. 1994)
patent exhaustion
Patent Exhaustion

Transcorev. Elec. Trans. Consults.

  • Transcoresued Mark IV and settled, granting a covenant
    • “[TransCore] agrees and covenants not to bring any demand, claim, lawsuit, or action against Mark IV for future infringement”
  • When Mark IV won contract to supply same product to ETC (ISTHA), Transcore sued for infringement of same patents, plus one
  • On patent exhaustion defense, Federal Circuit held
    • Referring to covenant, “This term, without apparent restriction or limitation, thus authorizes all acts that would otherwise be infringements.”
    • “Mark IV\'s sales to ISTHA were authorized and . . . TransCore\'spatent rights are exhausted.”
covenant under 11 u s c 365 n
Covenant Under 11 U.S.C. § 365(n)

In re Spansion, 2011 U.S. Dist. LEXIS 82829 (D. Del. 2011), aff’d 2012 U.S. App. LEXIS 26131 (3d Cir. 2012)

  • “Spansion is willing to dismiss the ITC action, and will not re-file the ITC action or another action related to one or more of the same patents against Apple, in consideration of the following:”
  • Spansion sought rejection of covenant. Apple wanted benefit of Section 365(n)
in re spansion
In re Spansion

Spansion promised “not to sue Apple for its use of Spansion\'s patented products. Accordingly, . . . the letter agreement is a license.”

365(n) applies to rejected “contract under which the debtor is a licensor of a right to intellectual property” and provides licensee right to retain its rights.

“Since the letter agreement was a license, Spansion\'s rejection of the license under § 365(a) triggered Apple\'s right to elect to retain its licensing rights under § 365(n).”

does a covenant run with patent
Does a Covenant Run With Patent?

Does it runs with the patent?

  • No current decision on point.
  • Older decisions suggest equitable to extend grant to assignee
    • Pratt v. Wilcox Mfg., 64 F. 589 (C.C.D. Ill. 1893)
      • Unclear whether court considered agreement to be a covenant or license

A personal promise not to enforce

  • Implied license arising from equitable estoppel
  • Whether assignee would be bound by equitable encumbrance would depend on facts
    • Assignee’s knowledge of covenant
    • As between covenantee and assignee, who should suffer?
covenant not to sue2
Covenant not to sue

If covenant not to sue is a license, why have two approaches to same result?

  • Covenant not to sue is not a different concept; it is an imprecise or implied grant of a license
    • “No formal granting of a license is necessary in order to give it effect. Any language used by the owner of the patent . . . that . . . may properly infer that the owner consents to . . . use of the patent . . . constitutes a license and a defense to an action for a tort.”
    • De Forest Radio v. United States, 273 U.S. 236 (1927)
covenant not to sue3
Covenant not to sue

Contract, like a license, should

  • Define scope of promise not to sue
    • Extends to whom – customers, suppliers?
    • Identify patents (all claims or specific product), field, territory
    • Define term – can be for less than life of patents
  • Under what conditions can it be assigned
    • Require assignment with patent assignment
disclaimer
Disclaimer

These materials are public information and have been prepared solely for educational and entertainment purposes to contribute to the understanding of U.S. intellectual property law. These materials reflect only the personal views of the authors and are not individualized legal advice. It is understood that each case is fact-specific, and that the appropriate solution in any case will vary. Therefore, these materials may or may not be relevant to any particular situation. Thus, the authors and Finnegan, Henderson, Farabow, Garrett & Dunner, LLP cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presentation of these materials does not establish any form of attorney-client relationship with the authors or Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. While every attempt was made to ensure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed.

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