October 21, 2021
LES Insights
By John C. Paul; D. Brian Kacedon; Anthony D. Del Monaco; Umber Aggarwal
A New York court found that a settlement agreement releasing a defendant from liability for past infringing sales did not retroactively authorize those sales and therefore did not exhaust the patent rights in the products at the time of the past sales.
Dr. Berall owned a patent covering a laryngoscope. Aircraft Medical Ltd. (“Aircraft”) manufactured the McGrath Laryngoscope. LMA was Aircraft’s exclusive U.S. distributor of this product. Dr. Berall sued Aircraft and LMA for patent infringement. Aircraft and Dr. Berall entered into a settlement agreement that included the following release language:
Berall releases Aircraft and its Affiliates from any claim or demand, whether now known or unknown, arising out of or related to (i) infringement of the ’178 patent; (ii) the claims and counterclaims asserted in, and the conduct of, the Litigation; (iii) any acts and conduct prior to the Effective Date of this Agreement that would have been released under this Agreement if performed after the Effective Date; and (iv) the conduct of settlement negotiations (except for representations or obligations expressly included in this Agreement).
No provisions of the agreement expressly released LMA from liability and LMA was not an “Affiliate,” as defined in the agreement. After executing the settlement agreement, Dr. Berall and Aircraft submitted a joint stipulation to dismiss Aircraft, and the case continued against LMA. Subsequently, LMA merged into a third party Teleflex and the district court substituted Teleflex for LMA.
Teleflex moved for summary judgment asserting that the Berall-Aircraft settlement agreement retroactively authorized Aircraft’s sales of the McGrath Laryngoscope to LMA, thus exhausting any patent rights to Dr. Berall’s patent. Specifically, Teleflex argued that the agreement released Aircraft from all claims of patent infringement, including for sales made to LMA before the effective date of the agreement. Thus, according to Teleflex, patent exhaustion prevented Dr. Berall from seeking recovery from a downstream user, such as LMA.
The district court denied Teleflex’s motion for summary judgment holding that patent exhaustion did not apply. Patent exhaustion is an affirmative defense to patent infringement. When the patent owner authorizes the sale of a patented item, patent exhaustion prevents the patent owner from using its patent to control the further use and resale of the product. Thus, the purchaser or acquirer of the item has the right to use or sell the item as she sees fit. Importantly, the sale at issue must have been authorized by the patent owner at the time it was made.
The district court noted that the agreement merely released Aircraft from liability from past infringing sales but did not establish that Aircraft’s previous sales were authorized at the time those sales were made. It also distinguished TransCore, LP v. Electric Transaction Consultants Corp., in which the Federal Circuit held that a covenant not to sue the defendant for future infringement constituted an authorization for the defendant to engage in future sales. In this case, unlike Transcore, the allegedly infringing sales involving LMA were made before the effective date of the agreement. Ultimately, noting that “timing of any sales authorization is crucial to the patent exhaustion analysis,” the district court denied Teleflex’s motion.
Agreements that release liability for patent infringement for past sales may still retain liability by downstream purchasers.
The Berall decision can be found here.
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.
June 10-12, 2024
San Francisco
Lecture
Patent Protection for Software-Related Inventions in Europe and the USA Training Course
June 5, 2024
Hybrid
Webinar
Obviousness of Biologics Inventions: Strategies for Biologics Claims in the U.S., Europe, and China
May 28,2024
Webinar
Due to international data regulations, we’ve updated our privacy policy. Click here to read our privacy policy in full.
We use cookies on this website to provide you with the best user experience. By accepting cookies, you agree to our use of cookies. Please note that if you opt not to accept or if you disable cookies, the “Your Finnegan” feature on this website will be disabled as well. For more information on how we use cookies, please see our Privacy Policy.
Finnegan is thrilled to announce the launch of our new blog, Ad Law Buzz, devoted solely to breaking news, developments, trends, and analysis in advertising law.