Federal Circuit Equates Covenants Not to Sue for Patent Infringement with Unconditional Licenses
By Debbie Rosenbaum – Edited by Evan Kubota
TransCore, LP v. Electronic Transaction Consultants Corp., No. 2008-1430, April 8, 2009
On April 8, 2009, the United States Court of Appeals for the Federal Circuit affirmed a district court’s grant of summary judgment, which held that an unconditional “covenant not to sue” has the same effect as an unconditional “license” for purposes of patent exhaustion.
In 2000, TransCore settled a patent infringement action against Mark IV. The settlement agreement required Mark IV to pay $4.5 million in exchange for TransCore signing an unconditional covenant not to sue and releasing all existing claims.
The suit here was initiated several years later. TransCore sued Electronic Transaction Consultants (ETC) for patent infringement based on ETC’s use of a system sold by Mark IV. Three of the allegedly infringed patents were subject to the covenant not to sue with Mark IV; the fourth patent was related but had not been issued when the covenant was signed. The United States District Court for the Northern District of Texas granted summary judgment against TransCore.
On appeal, the Federal Circuit affirmed the grant of summary judgment on the grounds of patent exhaustion (with respect to the three patents listed in the covenant not to sue) and legal estoppel (with respect to the newly-issued patent). The Federal Circuit agreed with the district court that Quanta Computer, Inc. v. LG Electronics, Inc., 128 S. Ct. 2109 (2008), compelled the conclusion that “an unconditional covenant not to sue authorizes sales by the covenantee for purposes of patent exhaustion.”