Covenants not to sue (CN2S)

Covenants not to sue (“CN2S”) are a licensor exit strategy to get out of an unwanted DJ action brought by a licensee. Typically, the licensee secured DJ jurisdiction and is attacking validity/infringement. The licensor files/offers up a CN2S along with a motion to dismiss. The licensor argues that the CN2S eliminates a case and controversy so DJ jurisdiction is extinguished. This fact pattern is addressed in many cases including Dow Jones & Co. v. Ablaise Ltd., 95 USPQ2d 1366 (Fed. Cir. 2010); Revolution Eyewear Inc. v. Aspex Eyewear Inc., 89 USPQ2d 1885 (Fed. Cir. 2009); Benitec Australia, Ltd. V. Nucleonics, Inc. 83 USPQ2d 1449 (Fed. Cir. 2007); Fort James Corp. v. Solo Cup Co., 75 USPQ2d 1257 (Fed. Cir. 2005); Intell. Prop. Dev., Inc. . TCI Cablevision of Calif., Inc., 58 USPQ2d 1681 (Fed. Cir. 2001); Amana Refrig., Inc. v. Quadlux, Inc. 50 USPQ2d 1304 (Fed. Cir. 1999); Super Sack Mfg. Corp. v. Chase Packaging Corp. 35 USPQ2d 1139 (Fed. Cir. 1995).

These cases establish that a timely CN2S of appropriate scope extinguishes DJ jurisdiction. The battles over CN2S documents, not surprisingly, erupt over whether the document is timely and/or of appropriate scope. To be of the right scope, the document must encompass current, past, and specific (non-speculative) future products at issue; past and future infringement; and all the “accused” parties who are to be released.

A CN2S covered only past infringement of current products. The CN2S did not cover past products that were pulled from the market due to litigation. Nor did the CN2S cover any future acts for any products. This CN2S was too narrow to negate a case or controversy under Article III, and the DJ action continued. Revolution Eyewear Inc. v. Aspex Eyewear Inc., 89 USPQ2d 1885 (Fed. Cir. 2009).

A CN2S covered past and future infringement of all products at issue. The CN2S covered subsidiaries, but not the parent. No subsidiaries or parents were parties. This CN2S was sufficient to negate Article III jurisdiction and the DJ action was dismissed. Dow Jones & Co. v. Ablaise Ltd., 95 USPQ2d 1366 (Fed. Cir. 2010).

A CN2S was filed after a jury verdict of invalidity. The Federal Circuit determined that this CN2S was too late to be timely. Fort James Corp. v. Solo Cup Co., 75 USPQ2d 1257 (Fed. Cir. 2005). Amazingly, the Federal Circuit had to reverse the district court!

In summary, a CN2S must be carefully drafted to be timely and have the right scope, but there are many cases to guide drafting efforts.