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Preliminary Injunction Upheld to Enforce Forum Selection Clause Where Continuations of Licensed Patents Are Impliedly Licensed

July 08, 2011
Rodkey, Kevin D.

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Last Month at the Federal Circuit - August 2011

Judges:  Linn (author), Schall, Dyk

[Appealed from: D.N.M., Judge Browning]

In General Protecht Group, Inc. v. Leviton Manufacturing Co., No. 11-1115 (Fed. Cir. July 8, 2011), the Federal Circuit affirmed the district court’s decision to enforce a forum selection clause and found that the district court did not abuse its discretion in granting a preliminary injunction against Leviton Manufacturing Co., Inc.’s (“Leviton”) infringement suits brought in other forums.

Leviton and General Protecht Group, Inc. (“GPG”) are both manufacturers of ground fault circuit interrupters (“GFCIs”). In 2004 and 2005, Leviton sued GPG in the District of New Mexico, alleging infringement of U.S. Patent Nos. 6,246,558 (“the ’558 patent”) and 6,864,766 (“the ’766 patent”). In 2007, the parties settled the dispute pursuant to a confidential settlement agreement (“Settlement Agreement”). In the Settlement Agreement, Leviton

covenants not to sue (1) Defendants . . . for alleged infringement of the ’558 and/or ’766 patents based on the [Defendant’s] products currently accused of infringement . . . and (2) Defendants . . . for alleged infringement of the ’558 patent and/or the ’766 patent with respect to an anticipated future new . . . product that Defendant . . . has indicated its intent to market in the U.S. in the future . . . .

Slip op. at 3. The Settlement Agreement also included a forum selection clause stating that “[a]ny dispute between the Parties relating to or arising out of this [Settlement Agreement] shall be prosecuted exclusively in the United States District Court for the District of New Mexico.” Id. (second alteration in original).

In September 2010, Leviton filed complaints against GPG and its distributors in the ITC and the Northern District of California, alleging infringement of U.S. Patent Nos. 7,463,124 (“the ’124 patent”) and 7,764,151 (“the ’151 patent”), which are continuations of the ’558 and ’766 patents, and issued after the Settlement Agreement was executed.

GPG informed Leviton that it believed it had a license to practice the asserted patents under the Settlement Agreement. GPG then brought a DJ action in the District of New Mexico asserting noninfringement, invalidity, and breach of contract. GPG also sought a temporary restraining order and preliminary injunction against Leviton’s continued litigation of the dispute outside of New Mexico. The district court, following the Federal Circuit’s holding in TransCore v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009), granted the preliminary injunction enforcing the forum selection clause of the Settlement Agreement. In the TransCore case, TransCore had previously settled a lawsuit that gave Electronic Transaction Consultants Corp. a license to practice the patents-in-suit. The settlement specifically stated that the covenant not to sue will not apply to any other patents issued as of the effective date of the agreement or to be issued in the future. When TransCore’s continuation patent later issued, however, the Federal Circuit held that the new patent was also covered by an implied license and through legal estoppels. Leviton appealed the district court’s grant of the preliminary injunction.

On appeal, Leviton made three arguments: (1) the forum selection clause does not apply because it does not extend to cases in which the only relationship the Settlement Agreement bears to the subsequent dispute is that it possibly gives rise to a defense; (2) even if the forum selection clause could apply in such cases, the Settlement Agreement does not give rise to an implied license defense in the present case as a matter of law; and (3) the district court erred in its application of the remaining three preliminary injunction factors.

The Federal Circuit first considered whether GPG was likely to succeed on the merits of applying the forum selection clause. The Court determined that the likelihood of success turned on whether GPG’s implied license defense crossed the threshold required to trigger the “relating to or arising out of” provision of the clause. Applying its holding in Texas Instruments Inc. v. Tessera Inc., 231 F.3d 1325, 1328 (Fed. Cir. 2000), the Court determined that, because the outcome of the dispute regarding the scope of the patent license would determine whether Leviton can sustain a patent infringement action, there is no question that the case “relates to or arises out of” the Settlement Agreement and that the forum selection clause applies.

Next, the Federal Circuit turned to GPG’s likelihood of success on its implied license defense. The Court compared the current case to its previous decision in TransCore and reaffirmed that “legal estoppel refers to a narrow[] category of conduct encompassing scenarios where a patentee has licensed or assigned a right, received consideration, and then sought to derogate from the right granted.” Slip op. at 9 (alteration in original) (citing TransCore, 563 F.3d at 1279).

Leviton argued that TransCore does not control because (1) TransCore is limited to cases where the claims of the continuation are broader than and therefore necessary to practice the claims of the expressly licensed patents; (2) the manifest mutual intent of the parties in the present case was to convey narrower rights than were conveyed in TransCore such that no license can be implied here; and (3) such a result conflicts with this Court’s holding in the earlier decided case of Jacobs v. Nintendo of America, 370 F.3d 1097 (Fed. Cir. 2004). The Federal Circuit addressed each argument in turn.

The Court first rejected Leviton’s argument that TransCore did not apply because the newly asserted patents by Leviton were narrower in scope than the patents under the Settlement Agreement. The Court noted that the continuation ’124 and ’151 patents relied on the same disclosure as the original ’558 and ’766 patents, and that the same products were accused of infringement in the new suit as in the previous suit. The Court stated that TransCore prohibits a patent licensor from derogating rights granted under a license and that if Leviton did not intend to license the products to extend to claims presented in the continuation patents, then Leviton had an obligation to make that clear. The Court further determined that, based on its holding in TransCore, it reasonably follows that where continuations issue from parent patents that have been previously licensed as to certain products, it may be presumed that, absent a clear indication of mutual intent to the contrary, the products are impliedly licensed under the continuations as well. The Court concluded that the parties are free to contract around an interpretive presumption that does not reflect their intentions, but that it is the parties’ burden to make such intent clear in the license.

Next, the Federal Circuit rejected Leviton’s argument that the parties intended the Settlement Agreement to be a “walk away” agreement that preserved Leviton’s rights to sue on other patents and to which TransCore does not apply. The Court determined that the language of the Settlement Agreement manifests a mutual understanding that future litigation between the parties concerning related patents is a distinct possibility, but that the language does not address whether the parties intended that continuation patents could be asserted against the same products, and, therefore, TransCore still applies.

The Court then rejected Leviton’s argument that TransCore does not apply because Jacobs conflicts with TransCore and should control as the first-decided case. The Court observed that Leviton admitted at oral arguments that Jacobs did not hold that a covenant not to sue does not give rise to an implied license. For this reason, the Court rejected Leviton’s final argument and concluded that TransCore does control.

Finally, the Federal Circuit analyzed the remaining factors in determining a preliminary injunction: irreparable harm to the moving party, balance of the hardships, and public interest. The Court agreed with GPG that the district court did not abuse its discretion in finding that GPG would likely be irreparably harmed in the absence of a preliminary injunction because it would be deprived of its bargained-for forum and would likely be forced to litigate the same issues on multiple fronts at the same time. The Court also concluded that the district court did not abuse its discretion in finding that the balance of hardships favored the injunction.

Finally, the Federal Circuit determined that public policy favors enforcing the forum selection clause, rejecting Leviton’s argument that the injunction contravenes public interest by hindering an ITC investigation. The Court concluded that the preliminary injunction will not and cannot enjoin the ITC action, and there is no public interest served by excusing a party’s violation of its previously negotiated contractual undertaking to litigate in a particular forum. Accordingly, the Court affirmed the district court’s issuance of a preliminary injunction.

Summary authored by Kevin D. Rodkey, Esq.