Dennis Crouch's Patently-O: When is a Covenant-Not-to-Sue a Patent License?

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When is a Covenant-Not-to-Sue a Patent License? Posted: 25 Oct 2015 01:40 PM PDT Meso v. Roche (Meso Scale petition & app) In a new petition for cert, Meso Scale asks the following simple question: Whether a covenant, promise, or agreement not to sue for the infringement of a federal patent is a license of that patent as a matter of federal law. Patent licensing is a messy area of law because it is largely governed by state law (or foreign law if contracting abroad), but is also governed by federal patent law. The Federal Courts have been rather clear that, in the patent context, a covenant-not-to-sue is the equivalent of a license.  See, De Forest Radio Telephone & Telegraph Co. v. United States, 273 U.S. 236 (1927) and TransCore, LP v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009). However, in this case, the Delaware Courts ruled that the covenant-not-to-sue granted by Meso to Roche was “more than a simple consent, but less than" a license. — Thus the question presented. The importance here for Meso is that, since its covenant-not-to-sue wasn’t seen as a contractual license then Meso wasn’t able to enforce other (implied?) terms of that agreement.  Meso explains this setup in its brief: In this case, the Delaware courts' mistaken conclusion that Meso did not grant Roche a license led them further to conclude that Meso was not a party to a license agreement between Roche and respondent IGEN, under which Roche agreed that it would use certain patented technology only within a strictly limited field. By going outside that field, as it has since 2007, Roche placed itself in direct competition with Meso and caused great harm to Meso's business. Meso therefore sought to enforce the field restrictions in the license agreement against Roche, as the agreement permitted it to do. Because, however, they thought that Meso had not granted Roche a license (but had merely agreed not to sue Roche for otherwise infringing activities), the courts below accepted Roche's position and held that Meso had no right to enforce the terms of the license agreement. The issues here continue to be very important and relate to complex litigation and bankruptcy strategies as well.  In its 2013 decision in Already, LLC v. Nike, Inc., 133 S. Ct. 721 (2013) and MedImmune v. Genentech (2007), the Supreme Court considered the impact of covenants-not-to-sue and licenses on federal jurisdiction questions.  Two pending petitions (Mylan v. Apotex and Daiichi Sankyo v. Apotex) focus on the similar issue of patent disclaimer in the context of Hatch-Waxman gaming.  In those cases, a second ANDA filer (Apotex) is trying to trigger an early completion of the first-filer’s 180 days of generic exclusivity by challenging the brand’s patents that, in both cases, have been disclaimed but remain listed in the Orange Book. In the bankruptcy context, we know that a Trustee generally has power to selectively reject or accept executory contracts.  Section 365(n) creates an exception for licensed IP rights (thus barring an executor of an estate holding patent rights from unilaterally cancelling previously agreed-to licenses).  However, the Delaware court decision implicitly suggests that a covenant-to-sue wouldn’t fit within the exception and may instead be cancelled. The Meso petition also raises questions involving exhaustion – does exhaustion apply to an otherwise infringing article made subject to a covenant-not-sue — as well as taxation and notice.

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