Authored by D. Brian Kacedon, John C. Paul, and Larry M. Sandell
Settlement agreements often include covenants not to sue or licenses addressing the specific products and patents at issue in the lawsuit. These may often be accompanied by a general disclaimer of rights under any other intellectual property. Recently, in General Protecht Group, Inc. v. Leviton Manufacturing Co., No. 2011-1115 (Fed. Cir. July 8, 2011),1 the Court of Appeals for the Federal Circuit held that a covenant not to sue under two specific patents granted in a settlement agreement impliedly included rights under continuations of those patents with respect to the products specifically licensed under the settlement agreement. The Federal Circuit held that it should be presumed that the parties intended to include such patents absent some clear indication of mutual intent to the contrary.
The Leviton Decision
In 2004 and 2005, Leviton Manufacturing sued General Protecht Group ("GPG") and three other defendants for infringement of two of Leviton's patents. In 2007, the parties entered into a confidential settlement agreement to end the litigation. As part of the agreement, Leviton agreed not to sue GPG for infringement of the two patents with respect to certain of GPG's current and future products. The agreement also provided that "[a]ny dispute between the Parties relating to or arising out of [the settlement agreement] shall be prosecuted exclusively in the United States District Court for the District of New Mexico."
In 2010, Leviton filed complaints against GPG in the International Trade Commission ("ITC") and the U.S. District Court for the Northern District of California, alleging infringement of two different patents, which were continuations of—i.e., patents sharing the same specification as—the patents asserted in the earlier litigation between Leviton and GPG. These continuation patents had issued after the earlier litigation was terminated. In response to Leviton's complaint, GPG asserted that it believed it had an implied license to the continuation patents by virtue of the settlement agreement and that Leviton was required to bring any suit for infringement in the District of New Mexico pursuant to the forum selection clause in the agreement. When Leviton refused to agree, GPG filed suit in the District of New Mexico, asserting declaratory-judgment claims for breach of contract, non-infringement, and invalidity, and seeking an injunction against Leviton's litigation of the dispute outside of New Mexico. The district court found that GPG was likely to succeed on its implied license defense and thus entered a preliminary injunction against Leviton prosecuting its suit outside of the District of New Mexico.
On appeal, the Federal Circuit focused on GPG's implied license defense, which was based on the doctrine of "legal estoppel." This doctrine prohibits a licensor from licensing someone a property right, such as a patent, for valuable consideration and then seeking to take back the rights granted, usually by asserting another, separate patent. The Federal Circuit began by addressing its leading case in this area, Transcore v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009). In Transcore, the Federal Circuit, applying legal estoppel, prevented a patent owner from asserting a later-issued patent against the recipient of a covenant not to sue from the patent owner on two earlier-issued patents where the patent owner alleged that the practice of the earlier-issued patents would necessarily infringe the later-issued patent. The court reached this decision despite the fact that the agreement at issue included an express provision providing that the covenant not to sue did not apply to later issued patents. The court reasoned that while such a clause may protect against broad claims that future patents in general are licensed, it does not permit the patent owner to detract from the rights it granted.
On appeal, Leviton argued that the doctrine of legal estoppel should not apply to it because unlike the situation in Transcore where the licensee could not practice its license without infringing the asserted patent, in this case the claims of the later-issued patents (the continuations) were narrower. Thus, it would be possible to practice the licensed patents without infringing the continuations. Therefore, it did not truly detract from the rights grants.
The Federal Circuit noted, however, that the continuations had the same disclosure as the licensed patents. Thus, by definition, they must have claims directed to the same inventions. In addition, the very same products licensed by the settlement agreement were being accused of infringement in this case. Therefore, the Federal Circuit held that the assertion of the continuations was a derogation of the rights previously granted. The court went on to note that when "continuations issue from parent patents that have previously been licensed as to certain products, it may be presumed that….those products are impliedly licensed under the continuations as well." (emphasis added). Such presumption would only be overcome by a clear indication of a mutual intent to the contrary in the agreement.
Leviton attempted to argue that there was a showing of mutual intent to permit future suits on related patents in the language of the agreement. The Federal Circuit noted that the agreement did manifest an understanding that future litigation concerning related patents was a distinct possibility. But noted that in Transcore, there was also a reservation of rights that the court found ineffective to prevent the application of legal estoppel. In this case, while the agreement may have contemplated future litigation, it did not address whether continuation patents could be asserted against the very same products at issue in the initial litigation. Absent such language, the court held that Transcore controlled and that the language was insufficient to permit Leviton to assert the continuations.
Based on this analysis, the Court affirmed the district court's finding of a likelihood of success on the merits of the implied license defense and upheld the injunction against legal action outside of New Mexico.
Strategy and Conclusion
This case appears to establish a new presumption in license drafting that continuation patents will be impliedly included in any license agreement at least with respect to products specifically licensed under that agreement. In addition, the court's decision appears to require an extremely clear expression of intent to exclude continuation patents in order to avoid this presumption. Based on this decision, it would be wise to always expressly state whether continuations are included or excluded in any license and make sure that the intent is clear from the language of the agreement. Based on this decision, a general disclaimer of rights will likely not be sufficient.
1 The Leviton decision: http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-1115.pdf
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.