In a recent decision, the Federal Circuit clearly mixed up the basic underpinnings of a license to-do something verses a covenant not-to-do something. The Court in Transcore v. Electronic Transaction Consultants (Case No. 2008-1430), held products sold under a covenant not to sue were authorized sales that gave rise to patent exhaustion due to a covenant not to sue in a settlement agreement that was deemed by the court to be equivalent to a patent license.
Both the principles of a license and a covenant not to sue stem from common law real property rights. The framers of our constitution found intellectual property rights to be akin to real property rights in many ways. The theory of natural law – as you sow so you shall you reap – holds that you deserve to keep reap the benefits of your work. If you sow seeds in the land, you should own the crops produced from it; similarly, if you create intellectual property by expressing or implementing novel ideas, you deserve to reap the rewards from exploiting them.
If we carry the analogy of real property to intellectual property, an easement is something like a license to use your IP. In real property, an easement is a legal right to enter onto your property. It is not illegal or a trespass. With that easement, I the owner, have certain duties to you – to actually own the property (you can't give a right to something you don't own), to maintain your right to the easement, even if I sell the property (an easement usually travels with the title to the land), and to guard against foreseeable dangers. Contrarily, with a covenant, I do not need to own anything to promise I won't attack your rights (I can promise not to sue you for entering on someone else's land), I do not have a duty to transfer a covenant to a subsequent owner (covenants are considered personal to the individual who made it, and are usually non-transferable), and I do not need to actively guard your safety.
Similarly, in the intellectual property area, a license is a positive grant of rights to you to be able to use my property. I cannot grant you those rights, unless I have clear title to the IP (see the line of cases stating that if a patent is invalidated, there is no duty to pay license fees with respect to that patent). Further, a license is an encumbrance to the intellectual property, and usually does "travel" with the title of the IP. Lastly, I do have a duty to maintain the intellectual property viable for you to use under the license (i.e. pay maintenance fees on a patent), so that you get a benefit from your bargain.
A covenant not to sue under a patent or other intellectual property does not give you rights. For example, a covenant not to sue under a specific patent gives you freedom from worrying about a lawsuit from me, but if you practice my invention, damages will accrue during the no-lawsuit period, and I can sue you to collect when the period ends. Also, importantly, as I mentioned above, a license is considered an encumbrance that runs with title to a patent or other intellectual property – the next owner has to respect the license. A covenant, however, is personal to me – I promise not to sue you on the patent, but the next owner does not have to honor that promise. Of course, I have no duty to maintain the intellectual property free from encumbrances or even a duty to maintain its existence (by paying maintenance fees on a patent, for example).
The Federal Circuit relies on one of the explicitly enumerated rights that a patent bestows on its owner – the right to exclude others from practicing my invention. To be sure, even if I give you a license to practice my invention (a right to enter my property), you may need a license from others as well (you may have to cross other people's land to get to my property to use your easement). While it is true that a license to a patent does not give an absolute right to practice all aspects of my invention, it does give positive rights to practice those parts of my invention that are novel and mine. Smart lawyers crafting complex language can blur the lines between a covenant not to sue and a license, such that one really does become the other – and the Federal Circuit cites some of these cases where sophisticated language has blurred the lines. Nonetheless, a covenant is not always a license to a patent. In this sense, the Federal Circuit made the exception the rule, and missed the fundamental differences between a license and a covenant not to sue.
The above is solely my opinion and does not constitute legal advice.Sphere: Related Content