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?”
The evidence cited in the district court’s summary judgment order indicated that the licensor reduced its royalty from $15 million to $4 million in exchange for the licensee’s agreement to be bound no-challenge clause. The licensee, in other words, got a discount of $11 million by agreeing to the no-contest clause. It was not lost on the district court that the licensee would have obtained a very big and very unfair windfall if the no-challenge provision was found invalid.
But this case is unusual in that the no contest clause wasn’t being used here to bar an invalidity challenge by the licensee, but to prevent the licensee from advancing claim construction arguments based on the intrinsic record (primarily based on disclaimers in the file history). The licensor argued that the defendant’s narrow claim construction arguments were a “challenge” to the “scope” of the claims, and thus covered by the no-challenge clause. The district court found that the clause was ambiguous and did not resolve this issue.
But I suspect it would be problematic to interpret the clause as barring the licensee from making arguments about the scope of the claims. First, the no-challenge clause did not prevent the licensee from challenging infringement, but any non-argument invariably involves a “challenge” to the “scope” of a claim. For example, even applying the plain language of the claim for non-infringement, a defendant will invariably argue to the jury that the claim language does not cover the accused product or process. Wouldn’t any non-infringement argument qualify as a “challenge” to the “scope” of the claim, if it were interpreted so broadly? The easiest way to resolve this would be to hold that the no-challenge clause only covers indefiniteness arguments, i.e., that the claims fail to inform skilled artisans about claim scope with reasonable certainty.
Second, what is a “challenge” to the “scope” of a claim, anyway? Claim construction is a question of law for the district court. There is generally no presumption in favor of either party in claim construction, so the concept of a “challenge” to some preexisting “scope of the claim” doesn’t make sense. In fact, the district court in conducting the legal task of interpreting the claims is not bound to adopt the arguments or proposals by either party; it can review the record independently and come up with what it believes is the correct construction based on the record, regardless of the arguments by a party. The court can even reject agreed or “stipulated” constructions by the parties and adopted its own meaning. For the same reasons, the district court shouldn’t be bound by a private contract provision whose only impact would be to muzzle one of the parties in making claim construction arguments. If the goal of the court is to issue a sound and legally correct claim construction, it stands to reason that the court should have all input available in making that determination, including a fulsome set of arguments from both sides.
Contract provisions to never challenge validity of a patent are widely considered judicially unenforceable as against public policy, and it is highly unlikely the PTO would allow any filed reexamination or IPR petition to be barred on that basis either. But this settlement agreement is far more unusual in also barring any challenge the scope of any claim. If the two parties are competitors this could arguably have the anti-competitive effect of contract prevention of the sale of non-infringing competitive products, That is, products not even covered by the subject patents? Especially inconsistent with the patent owner having the burden of proof for infringement.
Interesting points and I am in agreement as to the ‘null for public policy’ reasoning, but if these agreements are reached to end litigation, should not the court from which that litigation is ending have a duty, not only to both parties, but especially to both parties, to be able put their stamp of approval or reject at least the offensive settlement portion AT THE TIME of settlement (rather than induce any expectation of contract and do MORE damage to the Freedom to Contract)…?
I would think most D.C. judges are happy to get patent litigation off their dockets without a trial and are not interested in sua sponte questioning of settlement provision details that do not impact the unambiguous finality of the existing litigation.
Sorry but no Paul, you cannot have it both ways for “mere convenience.”
(“you” being the Royal You here of course)
How many litigations have you managed (i’m talking about the real world) Snowflake? Not a rhetorical question.
You will, of course, not answer, because everybody knows the real answer.
Now pound the table and make some more stuff up.
Your ad hominem attack has nothing to do with the point at hand.
I have managed zero litigations.
I have also decided zero Supreme Court cases.
Heck, I have decided zero ANY court cases.
Does this mean that as an attorney, I cannot contribute to legal discussions?
What exactly was your line of work before you retired?
There you go again, Snowflake. Acting (being?) totally clueless in order to bait someone to explain the simplest of concepts and thus “engage” with your nonsense and extend the “conversation.”
Of course, of course, any schmo can type an opinion (e.g., “Sorry but no Paul”). But what relative weight should be accorded to the opinion of one who admits to “zero” experience?
Now pound the table and make some more stuff up.
There is absolutely ZERO “acting clueless” in my on point response to your attempted gamery and mindless ad hominem attack.
The aspect of zero experience is answered in the comments that I provide in that as an attorney with zero experience as a judge, one (would earnestly hope that ALL attorneys) may yet contribute to legal discussions on the topic.
I note as well that YOU have decided (yet again) to not answer the direct question put to you: what exactly was your line of work before you retired?
This is most definitely NOT a case of “pound the table and make some more stuff up” no matter how badly you want to try to SPIN the narrative to that effect.
(watch out for that anvil)
There you go again, Snowflake. But written records are pesky things. I said nothing about “experience as a judge.”
See 1.1.1.1.1.
Now pound the table and make some more stuff up.
You said nothin – because you omitted that part of my response.
That “thunk” you heard was yet another anvil landing on your noggin.
Yes, written records are pesky things — just not how you want to spin them.
Beep beep.
There you go again, Snowflake.
“You said nothin – because you omitted that part of my response.”
Now pound the table and make some more stuff up.
Yes, written records are pesky things — just not how you want to spin them.
Beep beep.
There you go again, Snowflake.
Nobody knows what it is you think you’re trying to say, Snowflake.
Now pound the table and make some more stuff up.
This is even less creative than your usual non-creativity.
Do current events have you down?
Adding to Paul’s point, other than in rare cases like class action settlements, there is no mechanism by which a district court could be forced to approve a private settlement agreement before dismissing a civil case. Federal Rule of Civil Procedure 41, in fact, specifically allows the parties to dismiss a civil action through a signed stipulation, without court approval. In most dismissals, the court never sees the written settlement agreement.
FRCP 41 (particular emphasis added):
a) Voluntary Dismissal.
(1) By the Plaintiff.
(A) Without a Court Order. Subject to Rules 23(e), 23.1(c), 23.2, and 66 and any applicable federal statute, the plaintiff may dismiss an action without a court order by filing:
(i) a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment; or
(ii) a stipulation of dismissal signed by all parties who have appeared.
(B) Effect. Unless the notice or stipulation states otherwise, the dismissal is without prejudice. But if the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits.
Things to consider…
Who exactly is invoking the notion of ‘public policy’ and when?
From a from a Duke Law Journal Vol. 1962: 285 (emphasis added)
While at common law a plaintiff had the absolute right to abandon his action at any time before verdict, substantial inroads have been made into this doctrine, primarily through statutory enactments. Prior to the adoption of the Federal Rules of Civil Procedure, federal courts were required under the Conformity Act to apply a variety of state rules governing voluntary dismissals in actions at law. In equity suits, however, federal judges were allowed limited discretion in deciding at which point in the proceeding plaintiff could abandon his action without court order. The drafters of the Federal Rules sought to restrict voluntary dismissal to an early stage in civil actions.
Seems perfectly in line that IF the later invocation of “public policy” is being raised to nullify the freedom to contract, THEN that would be the type of thing that would naturally fall to BEING a driver for restriction.
A Law 360 article points to other considerations that also show the current weakness in a wooden approach to FRCP 41:
link to cooley.com
Maybe my friend Mr. W. E. Coyote could apply some of his earnest energy on the issue instead of on his 0bsess10n with me and share something cogent on the issue.
> as against public policy
Should they be? The response to that rule is that patentees will demand fully paid up licenses (vs. ongoing royalties), which can make it tougher/riskier to actually settle.
A decent enough question, OC.
The other comments that I have provided seem to indicate a split between how this might be handled to preserve the ability to withdraw from the Article III forum by non suit from matters of law and from matters of equity.
Since our courts are not so split in actuality, one may wonder if not the better place for any such insertion of policy concerns may be refused to be touched AT ALL by the courts, and instead, rule as “all is fair” unless Congress actually passes an ‘applicable federal statute’ explicitly controlling this element within the larger sphere of freedom to contract.
Is that where you may have been going with your comment?
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