Patent Owner May Terminate a Patent Validity Challenge by Granting a Covenant Not to Sue

Authored by D. Brian Kacedon, John C. Paul, and Xiaoxiao Xue

Abstract

A California district court granted the patent owner's motion to dismiss a lawsuit involving a challenge to the validity of an asserted patent after the patent owner signed a covenant not to sue the defendant for infringement.

Confronted with a concern that a court may invalidate its patent, a patent owner may avoid a finding of patent invalidity by signing a clear covenant not to sue the accused infringer and filing a motion to dismiss the case. Recently, in Sonix Tech. Co. Ltd. v. Kenji Yoshida,¹ a California district court considered whether a patent owner's covenant not to sue was sufficient to grant its motion to dismiss the lawsuit.

Background

Kenji Yoshida accused Sonix of patent infringement through the use of an optical identification technology known as OID2. In response, Sonix sued Yoshida, asking the court to declare the patent invalid and not infringed.

Yoshida then expanded the controversy by accusing Sonix of infringing three other patents. Sonix responded by filing a motion for summary judgment, asking the court to find the patents invalid and not infringed. The court found that Sonix did not infringe three of the Yoshida patents, and left the infringement and validity of the remaining patent undetermined.

Sonix then filed another motion, asking the court to find the last remaining patent invalid. Yoshida responded by sending a covenant not to sue to Sonix for infringing any claim of the four patents at issue, and then filed a motion to dismiss the suit.

The Sonix Decision

The express language of Yoshida's covenant not to sue unconditionally and irrevocably released Sonix and its customers from any claim of infringement against past and future OID2 products. However, Sonix contended that Yoshida did not meet its requisite burden of showing, with absolutely clarity, that the covenant prevented it from resuming its enforcement efforts against Sonix. In particular, Sonix argued that the covenant was based on assumptions or otherwise conditioned on subjective knowledge or belief, pointing to the "recital" section preceding the covenant, which included statements about Yoshida's perceptions about the alleged sales of OID2 products and Yoshida's motivations for seeking dismissal.

The court disagreed with Sonix, finding that the disputed statements in the recital section did not alter the express language of the covenant. Focusing on the language of the covenant alone, the court found that under the covenant, Yoshida unconditionally released any infringement claims against Sonix for all past and future sales of OID2 products.

Yoshida also stated that Sonix and its customers were free to promote and sell Sonix's OID2 product, without fear of being sued for infringement of Yoshida's four patents. In light of Yoshida's covenant and other statements, the court granted Yoshida's request to dismiss its infringement claims as well as Sonix's claims for judgment of noninfringement and invalidity.

Strategy and Conclusions

This case illustrates how a patent owner may terminate a patent validity challenge by granting a covenant not to sue. It also shows the value in using clear and unconditional language when drafting a covenant not to sue and how statements surrounding the covenant may cause controversy as to the effect of the covenant.

Endnotes

¹ The Sonix decision may be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/SonixTechnologyCoLtdvYoshidaetal3-12-cv-00380-DI321_CASD.pdf.

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