1. Licensing & Management of IP Assets Covenant Not to Sue
AIPLA Spring Meeting
May 2, Presented by D. Patrick O’Reilley

2. Background to Covenants
Emotional
Implication of validity
Exhaustion
Lemelson
License to make, covenant to sell, license customer
Implied License
Covenant to supplier, sue customer

3. Covenant not to sue Contractual promise not to sue for infringing acts
Non-assertion agreement (difference?)
Judicially enforceable agreement. Already LLC v. Nike Inc., 2013 U.S. LEXIS 602 (Jan. 13, 2013)
Equivalent to a license. Transcore v. Elec. Trans. Consults., 563 F.3d (Fed. Cir. 2009)
“The inquiry focuses on what the agreement authorizes, not whether the language is couched in terms of a license or a covenant not to sue; effectively the two are equivalent.”
“the difference [between a license and a covenant not to sue] is only one of form, not substance-both are properly viewed as authorizations”

4. Assignment of Covenant
Hilgraeve Corp. v. Symantec Corp., 265 F.3d 1336 (Fed. Cir. 2001).
“Symantec also contends that the covenant not to sue for patent infringement is equivalent to a freely transferable license to the patent. This court has stated that ‘licenses are considered as nothing more than a promise by the licensor not to sue the licensee.’ The covenant not to sue does not grant a transferable license to the patent.”
License = covenant not to sue, but not covenant not to sue = license
Covenant does not grant a transferable license
License is assignable but only with permission of licensor
Hapgood v. Hewitt, 119 U.S. 226 (1886); Unarco Indus. v. Kelley Co., 465 F.2d 1303 (7th Cir. 1972)

5. Covenant not to sue
Does sales by covenantee require marking like a license?
Actual or constructive notice required to recover damages for infringement of patent on product U.S.C. §287
In re Yarn Processing Patent Validity Litigation (No. II), 602 F.Supp. 159 (D. N.C. 1984)
“Section 287… applies to authorizations by patentee of other persons ... regardless of the particular form these authorizations may take and regardless of whether the authorizations are ‘settlement agreements,’ ‘covenants not to sue’ or ‘licenses.’”
Holding approved in Amstead Indus. V. Buckeye Steel Castings, 24 F.3d 178 (Fed. Cir. 1994)

6. Patent Exhaustion Transcore v. Elec. Trans. Consults.
Transcore sued Mark IV and settled, granting a covenant
“[TransCore] agrees and covenants not to bring any demand, claim, lawsuit, or action against Mark IV for future infringement”
When Mark IV won contract to supply same product to ETC (ISTHA), Transcore sued for infringement of same patents, plus one
On patent exhaustion defense, Federal Circuit held
Referring to covenant, “This term, without apparent restriction or limitation, thus authorizes all acts that would otherwise be infringements.”
“Mark IV's sales to ISTHA were authorized and TransCore's patent rights are exhausted.”

7. Covenant Under 11 U.S.C. § 365(n)
In re Spansion, 2011 U.S. Dist. LEXIS (D. Del. 2011), aff’d 2012 U.S. App. LEXIS (3d Cir. 2012)
“Spansion is willing to dismiss the ITC action, and will not re-file the ITC action or another action related to one or more of the same patents against Apple, in consideration of the following:”
Spansion sought rejection of covenant. Apple wanted benefit of Section 365(n)

8. In re Spansion
Spansion promised “not to sue Apple for its use of Spansion's patented products. Accordingly, the letter agreement is a license.”
365(n) applies to rejected “contract under which the debtor is a licensor of a right to intellectual property” and provides licensee right to retain its rights.
“Since the letter agreement was a license, Spansion's rejection of the license under § 365(a) triggered Apple's right to elect to retain its licensing rights under § 365(n).”

9. Does a Covenant Run With Patent?
Does it runs with the patent?
No current decision on point.
Older decisions suggest equitable to extend grant to assignee
Pratt v. Wilcox Mfg., 64 F. 589 (C.C.D. Ill. 1893)
Unclear whether court considered agreement to be a covenant or license
A personal promise not to enforce
Implied license arising from equitable estoppel
Whether assignee would be bound by equitable encumbrance would depend on facts
Assignee’s knowledge of covenant
As between covenantee and assignee, who should suffer?

10. Covenant not to sue
If covenant not to sue is a license, why have two approaches to same result?
Covenant not to sue is not a different concept; it is an imprecise or implied grant of a license
“No formal granting of a license is necessary in order to give it effect. Any language used by the owner of the patent that may properly infer that the owner consents to use of the patent constitutes a license and a defense to an action for a tort.”
De Forest Radio v. United States, 273 U.S. 236 (1927)

11. Covenant not to sue Contract, like a license, should
Define scope of promise not to sue
Extends to whom – customers, suppliers?
Identify patents (all claims or specific product), field, territory
Define term – can be for less than life of patents
Under what conditions can it be assigned
Require assignment with patent assignment

12. Disclaimer
These materials are public information and have been prepared solely for educational and entertainment purposes to contribute to the understanding of U.S. intellectual property law. These materials reflect only the personal views of the authors and are not individualized legal advice. It is understood that each case is fact-specific, and that the appropriate solution in any case will vary. Therefore, these materials may or may not be relevant to any particular situation. Thus, the authors and Finnegan, Henderson, Farabow, Garrett & Dunner, LLP cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presentation of these materials does not establish any form of attorney-client relationship with the authors or Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. While every attempt was made to ensure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed.

13. Questions?