Home -> Law Blog Directory -> Intellectual Property Law Blogs -> IPKat

Intellectual Property Law

: IPKat

What is a 'covenant not to sue'?

By Johanna Gibson, David Pearce, Jeremy Phillips and Ilanah Simon.

The IPKat has been contacted by a European patent attorney working for a large company, who is keen to find out what the IPKat's readership thinks of a potential licensing issue that many may not yet have considered will even be a problem.  He says (with some minor IPKat editing):

"It's not often that I see US patent law mentioned in the IPKat, but I wonder if your readership are aware of the recent US CAFC case "Transcore" [available here, and with commentary from Patently-O here], which could have important ramifications for patentees, licensors and licensees alike, at least in the USA, and perhaps in Europe too.

The Court effectively held that a previous "covenant not to sue" clause (sometimes called a "non-assert") in an agreement between Transcore and a supplier effectively barred Transcore from suing a downstream recipient of transcore patented technology under its patents.

In effect, the covenant not to sue was held to be no different than a patent license, and hence the sale by the supplier was "authorised" and the patents were then "exhausted" (following Quanta - a US Supreme Court ruling last year reaffirming the long established principle of patent exhaustion following an authorised sale).

Interestingly, the Court in Transcore based its analysis on the fact that "the grant of a patent does not provide the patentee with an affirmative right to practice the patent but merely the right to exclude, see 35 USC S154(a)(1)"

In the USA at least now, any perceived difference between a non-assert or covenant not to sue and a bare explicit patent license would appear to be one of form, and not substance, which could have rather large consequences for patent licensing houses and the like.

The question for the Kats and their readership is whether European patent law effectively grants the same "negative monopoly", and whether we (and our clients) would be wise to take heed of the principles in Transcore?

For instance, I note that whilst section 60 of the UK Patents Act is not worded in the same way as the US code, it is based on the EPC, which in turn takes from the Community Patent Convention (which, whilst not in force is sometimes referred to by european Judges to aid interpretation). Interestingly, both TRIPS Article 28 and Article 25 of the CPC explicitly state that the only right a patentee is granted is the right to "prevent" others from making, using and so on. Therefore, it may be that any perception that a "covenant not to sue" clause is not a grant of a patent license is moot in Europe too (or perhaps it always was)."

The IPKat cannot see any effective difference between a covenant not to sue and a licence. Like other legally complex areas, however, he also suspects that the devil is always in the actual detail of any agreement. He would be interested to see what his readers think. Is there any effective difference?  If so, would it stand up in a European court?

Full post as published by IPKat on May 05, 2009 (boomark / email).