The No Sandbagging Rule

Submitted by patentadmin on Thu, 10/29/2009 - 12:22

A patent owner sues for infringement of several of its patents. Ultimately, the parties to the action reach a settlement which grants, to the defendant, a license under the patents in suit. The license agreement includes a covenant not to sue which “shall not apply to any other patents issued as of the effective date of this Agreement or to be issued in the future.” It further includes a release which specifies that “[n]o express or implied license or future release whatsoever is granted to [licensee] or to any third party by this Release.”

Subsequently, the patent owner licensor sued the licensee for infringement of a related patent that was pending in the Patent Office, but had not yet issued at the time of the aforesaid settlement and license. Will the action lie (lawyerspeak meaning “it won’t be thrown out of court”)? Perhaps surprising to the layman, the answer is NO. More surprisingly, despite all the verbiage to the contrary, the licensee HAS A LICENSE TO THE NEWLY ISSUED PATENT. Transcore, LP and TC License, Ltd. v. Electronic Transaction Consultants Corporation

The basis for this decision lay in the fact that the licensee could not practice the licensed patents without also infringing the newly issued patent. As the Court Of Appeals For The Federal Circuit held, “the licensor has licensed a definable property right for valuable consideration, and then has attempted to derogate (fancy word meaning “to take away a part so as to impair”) or detract from that right. The [licensor] is stopped (lawyerspeak meaning “prevented”) from taking back in any extent that for which he has already received consideration.” It found that the language of the license, that “[t]his Covenant Not To Sue shall not apply to any other patents … to be issued in the future” is not to the contrary. This language may protect [licensor] against broad claims that future patents generally are impliedly licensed, but it does not permit [licensor] to derogate from the rights it has expressly granted…”

THE LESSON TO BE LEARNED: Sandbagging of licensees is not allowed.

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