Tag Archives: Subject Matter Jurisdiction

Moot the Dispute? Not with a conditional covenant-not-to-sue

ArcelorMittal v. AK Steel Corp. (Fed. Cir. 2017)

In a split decision, the Federal Circuit has affirmed a district court judgment invalidating ArcelorMittal’s U.S. Patent No. RE44,153 (claim 24 and 25).  The primary disputed issue was whether the district court possessed subject matter jurisdiction when it granted summary judgment of invalidity and non-infringement.  The majority (Huges + Moore) found a sufficient case-or-controversy, while the dissent (Wallach) would have found appellant’s covenant-not-to-sue sufficient to moot the dispute.

A fundamental Constitutional limitation on the power of American courts is the requirement of a “proper case and controversy.”  US Courts only have jurisdiction over cases that involve “a substantial controversy, between [the] parties having adverse legal interests, of sufficient immediacy and reality.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (focusing on declaratory jurisdiction).

The district originally invalidated all the claims of the ‘153 patent, but that holding was vacated in a prior appeal as to claims 24 and 25. On remand, the patentee moved to dismiss the case for lack-of-jurisdiction since all it wasn’t asserting those claims in the lawsuit and all its asserted claims had been found invalid.  At the same time, however, Defendant moved for summary judgment of non-infringement of claims 24 and 25.   Seeking to avoid such a judgment, the patentee then executed and delivered a covenant not to sue Defendants and their customers under the RE’153 patent.  Although “facially unconditional,” the delivery included a statement that the covenant was tendered on condition that its motion to amend was resolved. (That motion would amend the complaint to totally remove assertion of claims 24 and 25 from the patent).  Importantly, the delivery included a statement that the patentee would be “ready to deliver the covenant unconditionally” upon resolution of the motion and also that the point of the conditional delivery was to ensure that the district court maintained jurisdiction over the case.   Following all that posturing, the district court went ahead an held the claims invalid and denied the motion to amend as moot.

On appeal, the Federal Circuit has agreed with the district court that it still held subject matter jurisdiction over the case since the covenant-not-to-sue wasn’t fully delivered.

Although a patentee’s grant of a covenant not to sue a potential infringer can sometimes deprive a court of subject matter jurisdiction, the patentee “bears the formidable burden of showing” “that it ‘could not reasonably be expected’ to resume its enforcement efforts. . .  In this context, that requires ArcelorMittal to show that it actually granted a covenant not to sue to Defendants, and that the covenant enforceably extinguished any real controversy between the parties related to infringement of the RE’153 patent. . . .

At no time before the court entered summary judgment did ArcelorMittal unconditionally assure Defendants and their customers that it would never assert RE’153 claims 24 and 25 against them. ArcelorMittal certainly had ample opportunity to provide the unconditional assurances required to defeat jurisdiction. It did not. . . . The district court, well within its discretion in managing its docket, resolved the … summary judgment motion without having first resolved the motion to amend.

As the court notes, the outcome here was fully within the patentee’s control and for strategic reasons it chose not to actually issue the covenant-not-to-sue.

Writing in Dissent, Judge Wallach disagrees with the majority’s interpretation of the cover-letter as creating a condition precedent that must be met before the covenant takes effect.  Rather, Wallach focused on the language of the covenant that was appropriately signed and submitted and its terms extinguish “any substantial controversy of sufficient immediacy between the parties concerning the RE153 patent, the only patent at issue in the instant action.”

In discerning a covenant’s scope and effect, we rely on its terms, not evidence extrinsic to the stipulation such as terms in an accompanying cover letter. See Already v. Nike. . . . When as here a covenant’s terms are unambiguous, we may not interpret those terms using extrinsic evidence, such as a cover letter. See, e.g., Coast Fed. Bank, FSB v. United States, 323 F.3d 1035, 1040 (Fed. Cir. 2003) (en banc) (contract analogy); see also Restatement (Second) of Contracts § 285 (Am. Law Inst. 1981) (describing a covenant not to sue as a “contract”).

My take is that Judge Wallach is substantially on the right path here, but he also misses important issues by focusing on the content of the covenant rather than its mechanism of delivery.  An alternative way to see the facts is that the covenant was wrapped in a separate contract that required resolution of the motion-to-amend prior to the covenant becoming effective.  In the property context, there are differences between the states as to whether conditional-delivery is permissible (outside the escrow context).