by Dennis Crouch
Patent settlement agreements often include a no-challenge clauses — where the accused infringer promises to never (again) challenge the validity of the asserted patents. Courts have done a slow about face on the notion of licensees challenging the validity of a licensed patent. In 1905, Licensee Estoppel was the general rule. That rule was slowly eroded until finally eliminated in Lear, Inc. v. Adkins, 395 U.S. 653, 670 (1969). Later, in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), the Supreme Court opened the door to provide a licensee in good standing easier access to the courts. Still, question remained whether explicit no challenge clauses would be enforceable; especially when done in the context of settling litigation. (Some licenses also included termination clauses if validity was challenged). Effectively what happened is that pre-1982 the various circuit courts extended Lear, but the Federal Circuit altered course. See Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362 (Fed. Cir. 2001); compare Rates Tech. Inc. v. Speakeasy, Inc., 685 F.3d 163 (2d Cir. 2012) (no-challenge term in settlement agreement was void for public policy reasons).
A new decision in this area is Transocean Offshore Deepwater Drilling Inc. v. Noble Corp. Plc, 4:17-CV-123, 2020 WL 1666119 (S.D. Tex. Apr. 2, 2020). In a first lawsuit, Transocean sued Noble for patent infringement and the parties agreed to a license agreement with a “no-challenge promise” as follows:
Noble Licensee covenants that it will not participate as a party or financially support a third party in any administrative or court proceeding or effort in the world to invalidate, oppose, nullify, reexamine, reissue or otherwise challenge the validity, enforceability, or scope of any claim of the Licensed Patents. Breach of this section 4.3 shall be considered a material breach which may not be cured.
Id. Later, Transocean sued Noble again for infringement – different acts of infringement, but the same patents. In that litigation Noble apparently did not challenge the patent’s validity or enforceability. However, Noble arguably did challenge the “scope” of the claims — attempting to limit the scope during claim construction proceedings.
Applying Flex Foot, the Texas District Court found the clause enforceable — jas a “clear and unambiguous waiver.”
Here, Transocean and Noble settled a patent infringement lawsuit involving the patents-in-suit by entering into the license agreement. In the license agreement’s no-challenge clause, Noble agreed that “it w[ould] not participate as a party or financially support a third party in any administrative or court proceeding or effort in the world to… challenge the…scope of any claim of the [patents-in-suit]” Under Diversey and Flex-Foot, the no-challenge clause is clear and unambiguous enough to waive future challenges to the scope of any claim of the patents-in-suit.
Id. The court then left open the actual meaning of the contract — in particular, what does it mean to “challenge the scope of any claim?”