The interaction of the patent exhaustion doctrine and covenants not to sue was highlighted in a recent opinion from the District of Delaware in Purdue v. Collegium. The court denied Collegium’s motion to dismiss, which was premised on Purdue’s covenant not to sue Collegium’s supplier. Purdue sued Collegium for infringing U.S. Patent Nos. 9,861,583; 9,867,784; and 9,872,836 with its pain-relief medication Nucynta. Separately, Purdue settled a patent-infringement suit with Assertio, another pharmaceutical company, which involved granting Assertio a covenant not to sue. The covenant not to sue extended to other entities interacting with Assertio, but Collegium was expressly carved out. The settlement affected this case because Assertio supplied Nucynta to Collegium under a commercialization agreement. That commercialization agreement provided that title to the product shifted from a contract manufacturing organization (CMO) directly to Collegium, never passing to Assertio. But the day after Assertio received the covenant not to sue as part of settling with Purdue, Collegium and Assertio amended the commercialization agreement so that title did transfer from the CMO to Assertio before transferring to Collegium. The court’s reasoning was based on interpreting this commercialization agreement against the background of the patent exhaustion doctrine. Generally, an authorized sale of a… Read More »Covenants Not to Sue Trigger Patent Exhaustion
Damages for patent infringement must be apportioned to the infringing features of an accused product and supported by substantial evidence. Finjan, Inc., v. Blue Coat Systems Inc., No. 2016-2520 (January 10, 2018) (precedential). After considering subject matter eligibility and infringement of the asserted patents, the Federal Circuit reviewed the damages awarded by the jury, reversing awards unsupported by substantial evidence and affirming awards properly apportioned. Finjan asserted U.S. Patent Nos. 6,154,844, 6,965,968, 7,418,731, and 7,647,633, and the district court found infringement by Blue Coat for all four patents. Upon reversing the infringement verdict of the ‘968 patent and affirming the infringement verdicts of the ‘844, ‘731, and ‘633 patents, the Court reviewed the damages awards for substantial evidence. Damages for patent infringement are limited to those “adequate to compensate for the infringement.” 35 U.S.C. § 284. Finjan asked for a reasonable royalty, which includes a royalty base (here, the smallest identifiable technical component) and a royalty rate (here, a dollar amount based on sales of the accused product). Blue Coat’s accused product, WebPulse, is a cloud-based system that associates URLs with a plurality of categories, e.g., gambling, shopping, and malware. WebPulse uses a “dynamic real-time rating engine” (DRTR) for analyzing… Read More »Reasonable Patent Royalties Require Proper Apportionment
In Audio MPEG, Inc. v. Dell Inc., the Eastern District of Virginia denied summary judgment of patent exhaustion because it was ambiguous whether a license between Audio MPEG and Dell’s supplier Microsoft covered the allegedly infringing software, leaving the issue to the jury. Audio MPEG asserted that Dell’s sales of computers infringed three of its patents on encoding and decoding digital audio signals. Dell sold computers with both Microsoft Windows and third-party audio software preinstalled. The parties primarily disagreed on two factual questions: (1) Did Audio MPEG’s license agreement with Microsoft cover Windows codecs called by the third-party software? (2) Did the preinstalled third-party software only call the codecs or does it contain infringing programming? (According to the expert witness quoted by the court, “A codec is a piece of software that encodes and/or decodes a digital data stream. Codecs typically exist as a part of a shared library, such as a DLL, so they can be utilized by more than one software program.”) In denying summary judgment of patent exhaustion, the court noted the stakes based on the resolution of these two questions: “if the Windows codecs are included under the License Agreement and the third party software calls… Read More »With License Ambiguous, Patent Exhaustion Heads to Jury
How can you draft a covenant not to sue for patent infringement without agreeing to restrictions that will prevent you from enforcing your patent rights against some unknown party in the future? In Securus Technologies Inc. v. Global Tel*Link Corp., Nos. 2016-1470, 2016-1506 (Jan 26, 2017), the Federal Circuit held that the plain and ordinary meaning of a covenant not to sue in a settlement agreement justified a district court’s summary judgment dismissing a cause of action for patent infringement. In 2009, Securus had settled a patent infringement lawsuit it had brought against various entities for allegedly infringing its patents. In that settlement, Securus gave the suit entities a covenant not to sue the entity “or its affiliates” for infringement of its patents until September 18, 2014. One of those entities was acquired by Global Tel *Link (GTL) in 2010; Securus sued GTL for infringing its patents in 2013. The District Court had found “that GTL qualified as an affiliate of PCS and that the covenant therefore protected GTL from Securus’s suit.” The Federal Circuit agreed, because the plain and ordinary meaning of “affiliate” encompassed GTL. And not only did the plain and ordinary meaning of “affiliate” encompass a corporate… Read More »The Plain Meaning of a Covenant Not to Sue
The question of whether claims from 23 different patents were “essential” to the IEEE 802.11 standard (popularly known as Wi-Fi) was presented to the court in In re Innovatio Ip Ventures, MDL Docket No. 2303, Case No. 11 C 9308 (N.D. Ill. July 26, 2013). In evaluating these claims, the court addressed a number of different issues related to determining when patent claims are standard-essential. Background The court had conducted a bench trial, to which the parties stipulated, concerning what patent claims were standard-essential. This proceeding came when, “[f]ollowing discovery, but before claim construction, the parties and the court agreed that the best course toward resolving the parties’ dispute would be to pause and evaluate the potential damages available to Innovatio if the Defendants are found to infringe Innovatio’s patents.” Innovatio, the Plaintiff, had acquired the patents from parties who had agreed to provide reasonable and non-discriminatory (RAND) license terms for patents essential to the 802.11 standard. Accordingly, the Plaintiff’s possible damages turned on whether it was obligated to offer the Defendants RAND license terms as required by the IEEE bylaws. The parties agreed that the current version of the IEEE bylaws would apply, even though past versions were in… Read More »When Are Patent Claims Standard-Essential?
An implied license is an affirmative defense to patent infringement. Because the defense is, by definition, highly fact-specific, it is not always clear what allegations are required to adequately plead the implied license defense. However, requirements for pleading the defense, e.g., under an estoppel theory, are not unduly onerous. The court’s denial of a motion to dismiss the defense in Integrated Global Concepts, Inc. v. J2 Global, Inc., No. C-12-03434-RMW (N.D. Cal. June 28, 2013), is illustrative. A complicated procedural history, including other litigation, underlies this declaratory judgment action. For present purposes, the essentials of the pleadings are that J2 brought counterclaims seeking a declaratory judgment of infringement of four patents in response to IGC’s declaratory judgment action, and IGC in turn responded to J2’s counterclaims with its own counterclaim for a declaratory judgment of implied license, among other things. The facts underlying these pleadings are also a little complicated, but necessary for understanding the basis of the implied license defense raised by IGC. The facts (which you can skim and skip below to the gist of the court’s analysis) as pled by IGC were that: In 1997 and 1998, J2 filed patent applications that subsequently issued as U.S. Patent… Read More »Pleading Implied License as an Affirmative Defense to Patent Infringement
Although parties often go to great pains to distinguish covenants not to sue from patent licenses, those two legal constructs may not be treated any differently by the courts. For example, in Innovus Prime, LLC v. Panasonic Corp. & Panasonic Corp. of N. Am., Inc., No. C-12-00660-RMW (N.D. Cal. July 2, 2013), the court accepted the proposition that “[u]nconditional covenants not to sue are equivalent to non-exclusive licenses.” Accordingly, where Panasonic had received a covenant not to sue from a patent’s original owner, and then was sued by a subsequent assignee, the court granted summary judgment in Panasonic’s favor. In 1982, Phillips and Panasonic entered into an agreement in which Phillips gave Panasonic a convenant not to sue for infringement of certain patent properties, including U.S. Patent No. 5,280,350. A 2007 agreement between these parties clarified the scope of the 1982 agreement, but no one disputed that the ‘350 patent was, and remained, within the scope of the covenant not to sue. In 2008, Phillips assigned the ’350 patent to a third party; after two more assignments, the ’350 patent was owned by Innovus. Panasonic moved for summary judgment after Innovus sued it for patent infringement. The court preliminarily granted… Read More »When Is a Covenant Not to Sue Like a Patent License?
The Federal Circuit has upheld Intel’s licensing defense where asserted reissue patents issued after the relevant license agreement was terminated. Intel Corp v. Negotiated Data Solutions, No. 2011-1448 (Fed. Cir. Dec. 17, 2012). Intel and National Semiconductor entered into a broad patent cross-licensing agreement in 1976. Under that agreement, National licensed to Intel patents including the following: all classes or types of patents and utility models of all countries of the world, applications for which have a first effective filing date in any country prior to the date of expiration or termination of this Agreement, in respect of which, as of the EFFECTIVE DATE, or thereafter during the term of this Agreement, NATIONAL owns or controls . . . [or has] the right to grant licenses of the scope granted herein . . . . National subsequently assigned certain patents to a third party. After filing the reissue applications at issue here, the third party in turn assigned the patents, and rights in the reissue applications, to N-Data. The reissue applications then issued in 2005 and 2006, well after the cross-licensing agreement had expired. Intel intervened after N-Data sued Intel’s customers. Among other things, Intel sought a declaratory judgment that it… Read More »Broad Grant of Patent Rights Includes Reissues
Sales outside the United States exhausted a patent owner’s rights in its U.S. patent, according to Multimedia Patent Trust v. Apple, Inc., No. 10-CV-2618-H (KSC), 2012 U.S. Dist. LEXIS 167479 (S.D. Cal. Nov. 9, 2012). Therefore, among rulings on summary judgment motions addressing a myriad of issues, the Court granted summary judgment to Canon on its affirmative defense of patent exhaustion based on Canon’s purchase of accused products from Fujitsu outside the United States. Fujitsu held an unconditional worldwide license to the patent in question, having received this license from AT&T, the patent’s former owner. MPT, the plaintiff, had alleged that Canon and other defendants variously infringed four patents related to video compression technology, including U.S. 5,136,377. Canon was accused of infringing only the ’377 patent, based on encoding and decoding functions of Fujitsu chips in Canon products. Fujitsu had licensed the ’377 patent from AT&T, its prior owner. Licensed patents, of which the ’377 patent was one, included those “issued at any time in any or all countries of the world.” The Fujitsu chips at issue were indisputably covered products under the patent license agreement. Contrary to MPT’s arguments, there were no genuine issues of material fact concerning whether the… Read More »Patent Exhaustion Based on Foreign Sales
The Second Circuit has held that “a clause in a settlement agreement which bars a patent licensee from later challenging the patent’s validity is void for public policy reasons under the Supreme Court’s decision in Lear, Inc. v. Adkins.” Rates Technology Inc. v. Speakeasy, Inc., No. 11-4462-cv (July 10, 2012). Rates Technology Inc. (“RTI”), owner of two telecommunications patents, accused Speakeasy of infringement, and offered Speakeasy a release from liability “in exchange for a one-time payment consistent with RTI’s tiered pricing structure.” The parties thereafter entered into a “Covenant Not to Sue” that included a release and promise that RTI would not sue Speakeasy (but evidently did not include the grant of a patent license). Without admitting infringement, Speakeasy acknowledged the patents’ validity and enforceability, and agreed not to challenge the validity of the patent claims. The no-challenge clause was supported by Speakeasy’s agreement to a $12 million liquidated damages provision. In the agreement, “Speakeasy” was defined to include Best Buy, which had announced plans to, and subsequently did, acquire Speakeasy. However, three years later, Best Buy sold Speakeasy to Covad. Around the same time, RTI accused Covad of infringement, and offered Covad an agreement similar to Speakeasy’s. Covad thereupon… Read More »2nd Cir. Applies Lear Doctrine to Pre-Lititgation Settlement Agreement