Covenant Not to Sue Contains an Implied License Barring Infringement Claims and Cannot Be Revoked After Reliance

March 2, 2012

The parties, ICOS Vision Systems and Scanner Technologies, have been involved in patent litigation against one another for over ten years. The patents at issue concern technology used to inspect electronic packaging and one of the patents involved the use of ball grid arrays that provide a method of securing the electrical connections between the microchip and circuit board. Scanner owns a patent pertaining to a method of calibrating and inspecting ball grid arrays. With respect to this patent, the district court bifurcated liability and damages and permitted ICOS to file a single summary judgment motion as to whether ICOS had an implied license through legal estoppel and whether the patent was unenforceable due to laches.

With respect to the implied license issue, the district court discussed the prior litigation between the parties in which Scanner had sued ICOS for patent infringement based on eight patents. After extensive litigation, including a trip to the Federal Circuit, the parties engaged in settlement negotiations that ultimately led to Scanner providing a covenant not to sue on these eight patents. The covenant not to sue provided that Scanner would not sue ICOS for infringement based on the methods or products previously or currently made, used or offered for sale in the United States or imported into the United States. Scanner subsequently attempt to revoke the covenant not to sue when ICOS proceeded with its declaratory judgment claim and the district court found that the covenant not to sue did not deprive it of subject matter jurisdiction to hear the declaratory judgment claim.

Scanner asserted that there was no consideration for the covenant not to sue and therefore it could revoke the covenant. The district court disagreed finding that ICOS's reliance on the covenant and ICOS's customers reliance on the covenant were sufficient to prove promissory estoppel and this satisfied the consideration.

The district court also found that Scanner was derogating ICOS' rights under the covenant by accusing ICOS of infringing yet another patent. "[T]he record shows that Scanner's assertion of the '237 Patent against ICOS would derogate ICOS's rights to practice claims in the [patents covered by the covenant not to sue]. ICOS presents expert analysis to show how the alleged inventions claimed in the '237 Patent are broader than those contained in the [patents covered by the covenant not to sue]." The district court also noted that the '237 Patent was also a continuation of the patents covered by the covenant not to sue and that the covenant not to sue did not expressly excluded subsequent patents in the patent chain.

Accordingly, the district court concluded that ICOS had an implied license to the '237 Patent.

With respect to laches, the district court found that there were factual issue regarding whether Scanner had unreasonably delayed in prosecuting the '237 Patent and therefore the issue was not ripe for summary judgment.

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It is now well settled that covenants not to sue are implied licenses. Accordingly, in giving a covenant not to sue it is critical to establish the terms of the covenant, the same as a license, and it is also important to establish when the covenant will expire, e.g., if the party acquiring the covenant continue to assert invalidity defenses to the patent.

ICOS Vision Systems Corporation N.V. v. Scanner Technologies Corporation, Case No. 10 Civ. 0604 (PAC) (S.D.N.Y. Feb. 15, 2012)

The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or SGibson@jmbm.com.