General Protecht Gp. (Zh. Dongzheng) v. Leviton Mfg. (Fed. Cir. 2011)
By Dennis Crouch
Note: This is an important case that clarifies a Federal Circuit rule of contract interpretation. The court holds here that a patent license will be presumed to cover continuation patents claiming priority to the licensed patent. Contracting parties can overcome this presumption by including within the contract “clear indication of mutual intent to the contrary.” This case should be read in conjunction with TransCore v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009). In TransCore, a seeming clear statement that the license did not “apply to any other patents [already issued] or to be issued in the future” was insufficient to overcome the presumption that future continuation applications were included within the license. In both TransCore and GPG, the presumption is derived both (1) from a reading of the terms of the written contract and (2) from equitable estoppel principles.
The case is also notable for its approval of the use of a preliminary injunction against the parties to stop proceedings occurring in a separate judicial forum.
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Background: In a prior lawsuit, Leviton sued GPG for infringing two of its circuit interrupter patents. Prior to trial, the parties settled and Leviton issued a covenant not to sue GPG or its customers on the patents-in-suit. The settlement also included a venue clause – indicating that any dispute would be “prosecuted exclusively in the U.S. District Court for the District of New Mexico.”
After the settlement, Leviton continued to prosecute continuation applications stemming from the original patents and, in 2010, filed complaints in both the International Trade Commission (ITC) and the Northern District of California against GPG for infringing two of the continuation patents.
In response, GPC filed a declaratory action in the New Mexico court and persuaded the judge there to issue a preliminary injunction barring Leviton from pursuing its claims in either the ITC or California. GPC argued that the prior settlement implicitly provides the company with a license to the newly issued patents and that, according to the prior settlement, any dispute regarding the license must be decided by the New Mexico court.
On appeal, the Federal Circuit affirmed lower court’s preliminary injunction.
This case presents a non-frivolous dispute regarding the scope of a patent license. The outcome of that dispute will determine whether the patentee can sustain its suit for infringement. Thus, there is no question in this case that the dispute “relates to or arises out of” the Settlement Agreement. The forum selection clause therefore applies, and the district court did not abuse its discretion in granting the preliminary injunction on that basis.
GPC’s implied license argument is non-frivolous based upon the Federal Circuit’s decision in TransCore v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009). In that caes, TransCore had previously settled a lawsuit that gave ETC (through MARK IV) a license to practice the patents in suit. The settlement specifically stated that the covenant not to sue “shall not apply to any other patents issued as of the effective date of this Agreement or to be issued in the future.” However, when TransCore’s continuation patent later issued, the Federal Circuit held that the new patent was also covered by an implied license and through legal estoppels. Here, the court found that the same principles apply.
From our holding in TransCore it reasonably follows that where, as here, continuations issue from parent patents that previously have been licensed as to certain products, it may be presumed that, absent a clear indication of mutual intent to the contrary, those products are impliedly licensed under the continuations as well. If the parties intend otherwise, it is their burden to make such intent clear in the license. It is well settled that parties are free to contract around an interpretive presumption that does not reflect their intentions.
Note: The preliminary injunction issue (esp. irreparable harm) is to be discussed in a separate post.