Contractual Estoppel by Licensee Trumps Public’s Interest in Patent’s Invalidity
February 02, 2001
Last Month at the Federal Circuit - March 2001
Judges: Linn (author), Mayer, and Plager
In Flex-Foot, Inc. v. CRP, Inc., No. 99-1489 (Fed. Cir. Feb. 2, 2001), the Federal Circuit affirmed the district court’s entry of judgment confirming an arbitration panel’s award in favor of the patentee, Flex-Foot, Inc. (“Flex-Foot”) and also affirmed the district court’s holding that CRP, Inc. d/b/a Springlite (“Springlite”) was estopped from challenging the validity of Flex-Foot’s patent under terms of a prior settlement agreement.
This was the third litigation between Flex-Foot and Springlite concerning U.S. Patent No. 4,822,363 (“the ‘363 patent”), which covers prosthetic foot devices. The first lawsuit, an infringement action brought by Flex-Foot in 1989 against Springlite, was settled and dismissed by way of settlement agreement (“SA1”) and a corresponding license agreement under the patent.
In 1993, Springlite initiated the second lawsuit by seeking a declaration that the ‘363 patent was invalid. After completing discovery, and while a fully briefed motion for SJ concerning the validity of the ‘363 patent was pending, the parties settled the lawsuit with yet another settlement agreement (“SA2”) and corresponding license agreement. This time, SA2 required Springlite to expressly waive any future right to challenge the validity and enforceability of the ‘363 patent. SA2 also required the parties to submit any future disputes concerning infringement of the ‘363 patent to arbitration.
In 1997, Flex-Foot again filed suit against Springlite alleging that one of Springlite’s new prosthetic devices infringed the ‘363 patent. In accor - dance with the parties’ SA1, the case went to arbitration. In 1999, Flex-Foot obtained an award from the arbitration panel after it had found that Springlite’s product literally infringed two claims of the ‘363 patent. The district court had confirmed the award, granted a permanent injunction against Springlite, and ruled that Springlite was collaterally estopped from challenging the patent’s validity.
On appeal, the Federal Circuit explained that the Arbitration Act provides four grounds for vacating an arbitration award: (1) fraud in procuring the award . . . , (2) arbitrator partiality . . . , (3) gross misconduct by the arbitrators . . . , and (4) failure of the arbitrators to render a mutual, final, and definite decision. See 9 U.S.C. § 10 (1994). The Federal Circuit further explained that an award may be vacated if it is in “manifest disregard” of the law. Wilko v. Swan, 346 U.S. 427, 436-37 (1953). The Federal Circuit noted that Springlite had not alleged fraud or partiality on the part of the arbitrators. Instead, Springlite had raised procedural and substantive challenges that the Federal Circuit conclud - ed did not constitute gross misconduct, manifest disregard for the law, or a failure to render a mutual, final, or definite decision.
In particular, Springlite challenged the sufficiency of the arbitrators’ written opinion, alleging that the panel had failed to construe the claims as required by law and SA2. Springlite argued that because SA2 required the arbitrators to “write a for - mal written opinion” directed to the issue of infringement, the arbitrators were required to make a written determination of patent scope.
The Federal Circuit noted that the arbitrators had provided a written opinion, and although it lacked a thorough construction of the claims, their opinion defined three significant claim limitations and explained that the disputed ‘363 patent claims covered only an “assembled” prosthetic foot and not a kit for assembly. The Federal Circuit concluded, therefore, that the district court had not erred in upholding the sufficiency of the arbitrators’ written opinion.
Finally, Springlite challenged the enforcement of its waiver of the right to attack the validity of the ‘363 patent as part of SA2. Relying upon Lear v. Adkins, 395 U.S. 653 (1969), Springlite argued that its waiver was void as against the public’s interest in the use of ideas that are in the public domain.
The Federal Circuit found that Lear did not apply because Springlite had expressly waived its right to challenge the validity of the ‘363 patent as part of an agreement settling a lawsuit after obtaining full discovery on issues related to the validity of the patent. In contrast, in Lear the license did not contain any such promise not to challenge the validity of the patent. The Federal Circuit reasoned that Springlite’s waiver of that right in settling the litigation raises competing policy interests in the finality of settlements and judicial economy that were not at issue in Lear and that favor enforcing Springlite’s waiver. The Federal Circuit, therefore, held that Springlite was “contractually estopped” from challenging the ‘363 patent’s validity and affirmed the district court’s judgment on that issue.