Clarifying Provisions Avoid Ambiguity in Patent License Agreement

Abstract

To interpret an ambiguous term in a license agreement that was subject to several reasonable interpretations, a Delaware court relied on a clarifying provision and read the agreement as a whole.

Background

Lantiq paid Aware to develop DSL technology for Lantiq DSL chips. In return, Lantiq obtained a license to any patents obtained by Aware covering DSL chips. As Aware invented new technology, it entered into new agreements with Lantiq. Lantiq later purchased Aware’s DSL business, acquiring several of Aware’s DSL patents and renewing its license to all other Aware DSL patents.

TQ Delta purchased the patents from Aware, subject to the license with Lantiq. Two years later, TQ Delta sued Adtran for patent infringement. Adtran responded by arguing that its products contained Lantiq chips, and that it therefore had a license to the patents-in-suit. The court agreed that Adtran was licensed.

The TQ Delta Decision

Aware granted Lantiq a license to the patents related to DSL technology that it had not already purchased. A Carve-Out provision stated that “[t]he license does not include a license to patents solely used for or applicable for products compliant with an unlisted xDSL standard.” A Clarity provision stated that “For clarity: the license[ ] includes a license to those patents of Aware for products compliant with other standards provided that those patents are applicable to the aforementioned standards.”

TQ Delta and Adtran disputed whether the patents-in-suit were licensed or carved out of the license. Adtran stated that the asserted patents were not carved out and so were licensed, arguing that patents “solely used for or applicable for products compliant with unlisted xDSL standards” were not licensed, but patents used for or applicable for products compliant with unlisted and listed xDSL standard were licensed. TQ Delta disagreed, stating that the patents-in-suit were carved out and not licensed because, according to TQ Delta a patent is not licensed if the product for which that patent is “used” or “applicable” complies with an unlisted xDSL standard, even if it also complies with a listed xDSL standard.

The court concluded that the language of the Carve-Out provision was ambiguous and that both parties’ constructions were reasonable. But by reading the Carve-Out provision in the context of the Clarity provision, the license as a whole was unambiguous.

The Clarity provision had two rules. First, a patent is licensed if it is applicable to listed xDSL standards. Second, patent is licensed even for products also compliant with unlisted xDSL standards. In other words, the court interpreted the Clarity provision to state that if a patent covers both listed and unlisted standards, it is licensed. Taken as a whole, the Carve-Out and the Clarity provisions only supported Adtran’s interpretation.

Strategy and Conclusion

This case demonstrates the value of clarifying provisions, which help avoid language that may later be seen to be confusing or ambiguous.

Further Information

The TQ Delta decision can be found here.