Of Covenants and Certainty

We’ve certainly spoken before about retailers and their vendors, or distributors and their suppliers, or any other circumstance where a defendant is sued on an infringement claim for a product or service provided by someone else.

We comment on an interesting decision out of the Southern District of New York, concerning parties evidently engaged in patent litigation for a Dickens–esque amount of time. (“The little plaintiff or defendant who was promised a new rocking–horse when Jarndyce and Jarndyce should be settled has grown up, possessed himself of a real horse, and trotted away into the other world.” (Charles Dickens, Bleak House (1853)). In ICOS Vision Systems, the court granted plaintiffs’ motion for summary judgment on a theory of implied license by legal estoppel. The patent in question was a continuation of certain patents the subject of a previous covenant not to sue between the parties. The patent holder argued that the covenant not to sue was not supported by consideration, and therefore that no implied license should follow. The court disagreed. “There is no consideration for the [covenant not to sue] given here; but [plaintiff] and its customers relied on [defendant’s] promise not to sue for infringement of the eight [covenant not to sue] Patents under the terms set forth in that agreement. . . . In reliance on the [covenant not to sue], [plaintiff] has expand its sales worldwide and has indemnified its customers against future suit.” The Court ultimately concluded that, where the covenant not to sue did not expressly exclude subsequent patents in the same chain, continuations would be impliedly licensed.

Good news for any defendant (or indemnifier) looking for peace of mind out of a license agreement.

Posted by Stacy Stitham