The Exception becomes the Rule: a Covenant Not to Sue is Equated to a Patent License

In a recent decision, the Federal Circuit clearly mixed up the basic underpinnings of a license to-do something verses a covenant not-to-do something. The Court in Transcore v. Electronic Transaction Consultants (Case No. 2008-1430), held products sold under a covenant not to sue were authorized sales that gave rise to patent exhaustion due to a covenant not to sue in a settlement agreement that was deemed by the court to be equivalent to a patent license.

Both the principles of a license and a covenant not to sue stem from common law real property rights. The framers of our constitution found intellectual property rights to be akin to real property rights in many ways. The theory of natural law – as you sow so you shall you reap – holds that you deserve to keep reap the benefits of your work. If you sow seeds in the land, you should own the crops produced from it; similarly, if you create intellectual property by expressing or implementing novel ideas, you deserve to reap the rewards from exploiting them.

If we carry the analogy of real property to intellectual property, an easement is something like a license to use your IP. In real property, an easement is a legal right to enter onto your property. It is not illegal or a trespass. With that easement, I the owner, have certain duties to you – to actually own the property (you can't give a right to something you don't own), to maintain your right to the easement, even if I sell the property (an easement usually travels with the title to the land), and to guard against foreseeable dangers. Contrarily, with a covenant, I do not need to own anything to promise I won't attack your rights (I can promise not to sue you for entering on someone else's land), I do not have a duty to transfer a covenant to a subsequent owner (covenants are considered personal to the individual who made it, and are usually non-transferable), and I do not need to actively guard your safety.

Similarly, in the intellectual property area, a license is a positive grant of rights to you to be able to use my property. I cannot grant you those rights, unless I have clear title to the IP (see the line of cases stating that if a patent is invalidated, there is no duty to pay license fees with respect to that patent). Further, a license is an encumbrance to the intellectual property, and usually does "travel" with the title of the IP. Lastly, I do have a duty to maintain the intellectual property viable for you to use under the license (i.e. pay maintenance fees on a patent), so that you get a benefit from your bargain.

A covenant not to sue under a patent or other intellectual property does not give you rights. For example, a covenant not to sue under a specific patent gives you freedom from worrying about a lawsuit from me, but if you practice my invention, damages will accrue during the no-lawsuit period, and I can sue you to collect when the period ends. Also, importantly, as I mentioned above, a license is considered an encumbrance that runs with title to a patent or other intellectual property – the next owner has to respect the license. A covenant, however, is personal to me – I promise not to sue you on the patent, but the next owner does not have to honor that promise. Of course, I have no duty to maintain the intellectual property free from encumbrances or even a duty to maintain its existence (by paying maintenance fees on a patent, for example).

The Federal Circuit relies on one of the explicitly enumerated rights that a patent bestows on its owner – the right to exclude others from practicing my invention. To be sure, even if I give you a license to practice my invention (a right to enter my property), you may need a license from others as well (you may have to cross other people's land to get to my property to use your easement). While it is true that a license to a patent does not give an absolute right to practice all aspects of my invention, it does give positive rights to practice those parts of my invention that are novel and mine. Smart lawyers crafting complex language can blur the lines between a covenant not to sue and a license, such that one really does become the other – and the Federal Circuit cites some of these cases where sophisticated language has blurred the lines. Nonetheless, a covenant is not always a license to a patent. In this sense, the Federal Circuit made the exception the rule, and missed the fundamental differences between a license and a covenant not to sue.

The above is solely my opinion and does not constitute legal advice.

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Star-studded Litigation Panel Speaks about Dealing with the Media

On Thursday, April 2, 2009, I had the great privilege and pleasure of moderating a unique, star-studded panel of the intellectual property world at the IP Counsel Café. The panel was comprised of Lanny Davis (former Special Counsel to President Clinton during the Whitewater and Monica Lewinski scandals), Adam Goldberg (former Special Associate Counsel to President Clinton during that time), Mark Chandler (long-time General Counsel of Cisco) and Mark Howitson (counsel for Facebook). The topic of the panel was "Communicating with the Media to Your Company's Advantage in Business and Litigation."

The topic was my brainchild (I am happy to say), born out of listening and admiring the work of Lanny Davis in helping companies get their message out to the public – especially in risky and stressful times of litigation. When I mentioned the topic to an in-house attorney who manages litigation, he pooh-poohed it saying that there would be nothing to talk about: "When you're in litigation, the only response to the media is 'No Comment.'" Then, I knew the panel would be great.

Lanny Davis led the discussion with a luncheon address with war stories about defending President Clinton in scandals, including the allegations that the President had invited donors to stay in the White House's Lincoln bedroom in exchange for hefty donations to the then-upcoming presidential campaign. The evidence was damning. Rather than hiding it and being forced into a reactionary defense, Lanny 'took the bull by the horns,' and got all the information out immediately… on the eve of the 4^th of July. He then set about educating the media that what President Clinton might have done was not so unusual – other presidents invited donors to the White House in exchange for donations, including President Reagan – and he had proof. (More in his book). Long story short, instead of turning into an impeachment trial, the scandal faded away.

The lesson was clear – if you stay quiet, you let the other side gain an advantage and get their story out. During the panel session, Mark Chandler agreed. He clearly advocated engaging the press, as long as your team had done its homework, knows the facts and is very prepared to respond to questions. Of key agreement amongst the panelists was the need to communicate the facts clearly to the media – "on the record" or "off" – especially in complex cases where the facts can easily get lost in the legal-ese. Other topics of the hour and a half session included how to deal with a "shadow trial" in blogs and other quasi-news outlets, how to deal with conflicts in litigation strategy and media strategy (when media strategy can control litigation strategy), and how not to risk waiver of the attorney-client privilege when in-house counsel speaks to the media.

The positive feedback on the session was tremendous: one high-profile in-house patent attorney in the audience told me afterwards that this session was the high point of the entire two-day conference.

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