Covenant Not to Sue for Patent Infringement Does Not Necessarily Moot Patent-Invalidity Claims

Authored by D. Brian Kacedon, Cara R. Lasswell, and John C. Paul 

Abstract

Colorado court recently ruled that a patent owner was unable to moot and dismiss a counterclaim of patent invalidity by withdrawing patent-infringement claims and granting a covenant not to sue for patent infringement because the patent owner continued to pursue trade secret and breach of contract claims that could be affected by patent validity. However, the court instructed the defendant that before it could present any evidence of patent invalidity at trial, it must show that those claims can be legally asserted in connection with the evidence at trial.

Without a "case or controversy," a litigation becomes moot and a federal court lacks jurisdiction to adjudicate the matter and provide relief. A patent owner who files suit for patent infringement and later wants to end the litigation may attempt to use this principle and moot the litigation by withdrawing its infringement claims and granting the accused infringer a covenant not to sue for patent infringement. In doing so, the patent owner will often move to dismiss the accused infringer’s patent-invalidity counterclaims to try to avoid the attacks being made on validity during the litigation, arguing that the court no longer has jurisdiction over those claims.

Recently, in Port-A-Pour, Inc. v. Peak Innovations, Inc.¹, the United States District Court for the District of Colorado found that because issues beyond patent infringement might place the patent validity at issue, the patent owner’s withdrawal of infringement claims and grant of a covenant not to sue for infringement did not necessarily moot the defendant’s invalidity counterclaims.

Background

Plaintiff Port-A-Pour, Inc. filed suit against Defendant Peak Innovations, Inc. in the District Court for the District of Colorado, alleging patent infringement, breach of contract and trade secret claims. Peak responded with claims that the asserted patents were invalid. Port-A-Pour later withdrew its patent infringement claims and filed a covenant not to sue "Defendants, their affiliated companies, predecessors, etc." for infringement of the patents. Port-A-Pour then asked the court to dismiss Peak’s patent-invalidity counterclaims, which it argued were moot in view of its withdrawn infringement claims and covenant not to sue. Peak disagreed, arguing the covenant was not unequivocal, and that patent validity could still be an issue at trial.

The Court’s Decision

The court focused its analysis on whether Port-A-Pour’s covenant would "extinguish[] any current or future case or controversy between the parties." To determine if the issue of patent validity was truly moot, the court looked at both the language of the covenant and the issues in the case.

Port-A-Pour had promised "unconditionally and irrevocably" not to make any claim or demand for patent infringement against Peak as well as its affiliates and predecessors. The covenant included Peak’s past, current, and future products, in both the Colorado litigation and any future litigation.

But Port-A-Pour’s covenant included a specific reservation of rights.  It reserved the right "to assert breaches predicated on anything other than infringement." According to the court, this reservation of rights could allow Port-A-Pour to continue litigating the patents as part of breach of contract or trade secret claims, noting that the contracts at issue—confidentiality and licensing agreements—referenced the patents. And while the court agreed with Port-A-Pour that those agreements "do not necessarily implicate the validity of the patents," it recognized Peak’s theory that the patents provided the primary consideration for the contracts and their validity might be placed in dispute in that manner. Similarly, the court observed that Port-A-Pour’s discovery responses arguably connected the patents with its trade secret claims.  As a result, it was unclear to the court whether patent validity might become an issue at trial, and it thus rejected Port-A-Pour’s argument that the patent-invalidity claims were necessarily moot.

Nevertheless, the court instructed Peak that before it could present any evidence of patent invalidity at trial, it must show that those claims can be legally asserted in connection with the evidence at trial.

Strategy and Conclusion

As part of a patent owner's litigation strategy, it should consider in advance the possibility that a court will not agree that patent-invalidity issues are necessarily rendered moot by withdrawal of infringement claims and covenanting not to sue, where additional claims, such as breach of contract, remain in the case and may implicate patent validity.  These considerations may influence whether to withdraw infringement claims or the content of a covenant not to sue.

Endnotes
¹ The Port-A-Pour, Inc. opinion may be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/PortaPourInc_v_PeakInnovationsInc.pdf.