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Covenant Not to Sue Insufficient to Warrant Dismissal of Counterclaims Where Covenant Contained Reservation of Rights

The plaintiff filed a motion to dismiss the defendants’ patent invalidity counterclaims for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. Rule 12(b)(1) because the plaintiff withdrew its patent infringement claims and filed a covenant not to sue regarding those claims. In the motion to dismiss, the plaintiff asserted that the patent invalidity claims are therefore rendered moot by the covenant not to sue.

The district court then noted that in Dow Jones & Co., Inc. v. Ablaise, 606 F.3d 1338 (Fed. Cir. 2010), the court found that the offer of a covenant not to sue for patent infringement for any acts of infringement of a patent (past or future) was sufficient to divest the court of subject matter jurisdiction over a suit for declaratory judgment of invalidity. This was because the covenant “extinguished any current or future case or controversy between the parties.” Id. at 1348. The Ablaise court noted that whether a covenant not to sue divests the court of jurisdiction depends on what is covered by the covenant. 606 F.3d at 1346-47. In Ablaise, the plaintiff “on behalf of itself and any successors-in-interest to the ‘530 patent”, released and unconditionally covenanted not to sue Down Jones or any of its subsidiaries or divisions for infringement of the ‘530 patent “as of the date of this agreement based on Dow Jones’ manufacture, importation, use, sale and/or offer of currently existing products or use of methods.” Id. at 1345. When Dow Jones asserted that the covenant did not extend to Dow Jones’ past products or existing licenses, Ablaise clarified that the covenant extended to past products and use. Id. The Court held that this “extinguishe[d] the controversy” between the parties, and divested the court of its Article III jurisdiction.” Id. at 1349.

The district court then reviewed the specific provisions of the covenant not to sue, which included a “Reservation of Rights” and stated: “The foregoing Covenant extends solely and exclusively to the Patent Claims, and claims or demands for infringement of the Port-a-Pour Patents. Nothing contained herein shall be construed to waive, compromise, impair or affect any claim other than the Patent Claims . . ., including (a) any of Port-a-Pour’s remaining claims or defenses in the Lawsuit. . ., which Port-a-Pour reserves and retains in full. For example, while Port-a-Pour covenants not to raise infringement of the Port-a-Pour Patents as a predicate for its breach of contract claims, it reserves the right to assert breaches predicated on anything other than infringement of the Port-a-Pour Patents.”

Based on the Reservation of Rights language, the district court concluded that the covenant not to sue was conditional and would “arguably [ ] allow Plaintiff to continue to litigate the patents in connection with the breach of contract and/or trade secrets claims, and Plaintiff has not denied that it may do so. While I agree with Plaintiff that a breach of contract claim is legally distinct from a patent infringement claim, the Confidentiality Agreements at issue specifically encompass the patents and the Licensing Agreement incorporates the Confidentiality Agreements by reference.”

The district court then concluded that although the covenant not to sue may have extinguished the issue of infringement of the patents, it did not appear to extinguish the issue of the validity of the patents. “It is simply unclear at this juncture to what extent evidence about the patents will be introduced in connection with Plaintiff’s non-infringement claims, and if so, whether their validity will become an issue. This will depend on the evidence presented at trial. If validity of the patents is put at issue during the trial, Defendants should be allowed to present evidence to support their counterclaim of invalidity. Accordingly, I reject Plaintiff’s arguments that the patent invalidity claims are necessarily, as a matter of law, rendered moot by the Covenant Not to Sue. However, I note that before I will allow any evidence of the invalidity counterclaims, Defendants must show that such claims may be legally asserted in connection with the type of evidence presented at trial.”

Port-A-Pour, Inc. v. Peak Innovations, Inc.
, Case No. 13-cv-01511-WYD-BNB (D. Col. April 4, 2016)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or