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Protect Your Patent with a Covenant Not to Sue
Practical Law Legal Update 9-572-3927 (Approx. 4 pages)
Protect Your Patent with a Covenant Not to Sue
by Practical Law Intellectual Property & Technology
| Published on 16 Sep 2014 • USA (National/Federal) |
Alleged infringers often seek covenants not to sue from patent owners as a shield against patent infringement claims. However, a patent owner may also seek to use a covenant not to sue as its own shield. This Legal Update discusses covenants not to sue generally and reasons why a patent owner may consider providing a covenant not to sue to an alleged infringer in an ongoing dispute. Understanding this tactic and its limitations provides another tool in a patent owner's toolbox to manage its patent portfolio and maintain the value of, or at least minimize damage to, its patent portfolio.
A covenant not to sue has many similar legal effects as a nonexclusive license. Courts typically treat the two as equivalent, and both can authorize sales of the patented product for patent exhaustion purposes (see Transcore, LP v. Elec. Transaction Consultants Corp., 563 F.3d 1271, 1274 (Fed. Cir. 2009)). For more information on patent exhaustion, see Practice Note, Patent Infringement Claims and Defenses: Patent Exhaustion.
In certain situations, a patent owner, rather than an alleged infringer, may rely on a covenant not to sue in a patent suit to attempt to prevent the alleged infringer from obtaining a declaratory judgment of noninfringement, patent invalidity or unenforceability. This situation may arise when:
- The patent owner files a patent infringement action against the alleged infringer.
- The alleged infringer asserts a counterclaim seeking declaratory judgment of patent invalidity or unenforceability.
- During the course of the litigation, the patent owner becomes concerned that the alleged infringer could achieve some success in invalidating the asserted patent or rendering it unenforceable.
- The patent owner seeks to minimize damage to its patent and protect some aspect of its business.
The US Supreme Court addressed declaratory judgment jurisdiction in MedImmune, Inc. v. Genentech, Inc., where it held that a declaratory judgment action is available when there is a substantial controversy between the parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment (see 549 U.S. 118, 127 (2007)). Therefore, providing a covenant not to sue to an alleged infringer can be a mechanism to divest a court of declaratory judgment jurisdiction where it eliminates the case or controversy between the parties.
A covenant not to sue typically sets out the patent owner's agreement not to sue the alleged infringer for patent infringement concerning the patent identified. It may also be limited to certain products or processes of the alleged infringer, or to a specific field or territory.
While a covenant not to sue does not extinguish any claims, it may:
- Deprive a court of declaratory judgment jurisdiction concerning a claim that the relevant patent is invalid or unenforceable where the covenant covers past, present and future acts of potential infringement based on products in existence on the covenant's date (see Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1059 (Fed. Cir. 1995) and Already, LLC v. Nike, Inc., 133 S. Ct. 721, 728 (2013)).
- Give the alleged infringer receiving the covenant a cause of action for breach of contract if the patent owner breaches the covenant by bringing a later patent infringement suit.
A covenant not to sue may not prevent the court from proceeding with the declaratory judgment action in certain situations, such as where the covenant either:
- Does not cover future sales of the same product that was previously sold (see Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 556 F.3d 1294, 1298 (Fed. Cir. 2009)).
- Is not provided until after the court's consideration or resolution of the underlying infringement claim (see Fort James Corp. v. Solo Cup Co., 412 F.3d 1340, 1348 (Fed. Cir. 2005)).
Patent owner's counsel should therefore understand these rules and draft the covenant not to sue with sufficient breadth and timely provide the covenant to the alleged infringer to minimize:
- Damage to its asserted patent.
- Ongoing, unwanted litigation expenses.
For more information on covenants not to sue, see Standard Document, Covenant Not to Sue (Pro-patent-owner).
Because of the unique nature of patent litigation under the Hatch-Waxman Act, a covenant not to sue may be insufficient to obviate declaratory judgment jurisdiction in those types of cases (see Caraco Pharm. Labs. Ltd. v. Forest Labs., 527 F.3d 1278 (Fed. Cir. 2008)). For more information on Hatch-Waxman patent litigation, see Practice Note, Hatch-Waxman Act: Overview.