The Licensing Corner

• Publication year: 2020
• Author: John Pavolotsky

The Licensing Corner

John Pavolotsky

Intel Corporation

COVENANTS NOT TO SUE, EXCLUSIVE LICENSES, AND IMPLIED LICENSES

It is mid-April, another sleepy Sunday in San Mateo County. Blue skies (finally) seem within grasp, but, as I start writing this article, the passive-aggressive marine layer, seemingly cognizant of the sentiments of the day, simply refuses to burn off. We are starting week 5 of shelter-in-place, and as much as I enjoy my neighborhood, and the rolling hills with views of San Francisco Bay, there are only so many materially different walking routes I can devise. To the contrary, my dog does not seem to mind the more frequent walks, although I am quite sure that she would prefer to be off-leash, running around Fort Point, a wind-swept recreational area overlooking the Pacific on San Francisco's southern edge, and directly interacting with others.

As intimated above, there is some variability in the neighborhood walks, and the perspectives gained from each walk are different, if incrementally. The same can be said about license agreements which, depending on the technology or specific IP rights licensed, have their own landmarks, side streets, alleys, and cul de sacs, sometimes not well-demarcated by online or physical maps. Put otherwise, to avoid surprises, a practitioner really needs to walk the streets.

Covenants Not to Sue and Exclusive Licenses

In Molon Motor and Coil Corp. v. Nidec Motor Corp.,¹ the Federal Circuit explored one of those alleys, the interplay between a covenant not to sue (CNTS) under one agreement, an exclusive license under another agreement, and a merger clause (under that other agreement) purporting, in Molon's view, to extinguish the CNTS. In 2004, Molon sued Nidec's predecessor, Merkle-Korff, Industries ("Merkle-Korff") for infringing U.S. Patent 6,054,785 (the "'785 patent") (hereinafter, the "'5134 litigation"). Merkle-Korff counterclaimed, seeking a declaratory judgment of noninfringement, invalidity, and unenforceability with respect to two other patents owned by Molon: U.S. Patent 6,465,915 (the "'915 patent") and U.S. Patent 6,617,726 (the "'726 patent"). In 2006, Molon and Merkle-Korff entered into a CNTS (the "2006 CNTS") covering the '915 patent and the '726 patent:

Molon hereby forever covenants not to sue Merkle-Korff for patent infringement (whether direct, contributory, or by inducement thereof) under either the '915 patent or the '726 patent with respect to any and all products previously or presently made, used or sold by Merkle-Korff in the United States. This covenant extends directly to Merkle-Korff as well as any individual or entity to which Merkle-Korff previously or presently supplies products by way of the manufacture and/or sale thereof in the United States.²

In 2007, Molon and Merkle-Korff entered into a settlement agreement (the "2007 Settlement Agreement") and jointly stipulated to the dismissal of the '5134 litigation. The 2007 Settlement Agreement included the following license, covering the '785, '915, and '726 patents, as well as foreign patents and other U.S. patents:

Grant. Molon hereby grants each of the Merkle-Korff Affiliates an exclusive, fully paid-up, royalty free, worldwide, perpetual,

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