Covenants Not to Sue in the Wake of Already LLC v. Nike


Published on

Discusses the January 2013 Supreme Court decision bearing on the issue of when a covenant not to sue can nullify a claim for a declaratory judgment of invalidity. This was a TM case, but its principles are expected to apply to patent cases, as well.

Published in: Business
  • Be the first to comment

  • Be the first to like this

No Downloads
Total Views
On Slideshare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Covenants Not to Sue in the Wake of Already LLC v. Nike

  1. 1. 11Covenants Not to Sue in theWake of Already, LLC v. Nike© 2013 Womble Carlyle Sandridge & Rice, LLPby: Michael A. Ciceroby: Michael A. CiceroAtlanta OfficeAtlanta OfficePatent Legal Issues MeetingPatent Legal Issues MeetingMarch 12, 2013March 12, 2013
  2. 2. 2Womble Carlyle presentations are intended toprovide general information about significantlegal developments and should not beconstrued as legal advice regarding anyspecific facts and circumstances, nor shouldthey be construed as advertisements for legalservices.DISCLAIMER
  3. 3. 33Tech. Licensing Corp. v. Technicolor USA, Inc.,800 F.Supp.2d 1116 (E.D. Cal. 2011)Already, LLC v. Nike,___ U.S. ___, 133 S.Ct. 721 (Jan. 9, 2013)Hitachi Koki Co., Ltd. v. Techtronic Indus.Co., Ltd.,No. 1:09:3308-WSD (N.D. Ga. Feb. 6, 2013)Decisions Covered Here:Decisions Covered Here:
  4. 4. 44General Legal Principles onCovenants Not to Sue
  5. 5. 55General PrinciplesGeneral Principles• DJ Plaintiff’s Burden: “Subject matter jurisdiction in adeclaratory judgment suit depends upon the existence of ‘asubstantial controversy, between the parties having adverse legalinterests, of sufficient immediacy and reality to warrant theissuance of a declaratory judgment,’ and the plaintiff bears theburden of proving the existence of such a controversythroughout the litigation.” Dow Jones & Co. v. Ablaise Ltd.,606 F.3d 1338, 1345 (Fed. Cir. 2010) (emphasis added) (quotingMedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)).
  6. 6. 66General PrinciplesGeneral Principles• Covenant Content is Key: “[W]hether a covenant not to suewill divest the trial court of jurisdiction depends on what iscovered by the covenant.” Revolution Eyewear, Inc. v. AspexEyewear, Inc., 556 F.3d 1294, 1297 (Fed. Cir. 2009).• Jurisdiction Divested: “[A] covenant not to sue for patentinfringement divests the trial court of subject matter jurisdictionover claims that the patent is invalid, because the covenanteliminates any case or controversy between the parties.” DowJones, 606 F.3d at 1346.
  7. 7. 77General PrinciplesGeneral Principles• Covenant Applies to Continuations Unless CovenantSpecifies Otherwise. Gen. Protect Group, Inc. v. Leviton Mfg.Co., 651 F.3d 1335, 1361 (Fed. Cir. 2011).• Once Given, Covenant Might be Irrevocable. See ICOSVision Sys. Corp., N.V. v. Scanner Techs. Corp., No. 10 Civ.0604, 2012 U.S. Dist. LEXIS 19886, at *17 (S.D.N.Y. Feb. 15,2012) (Merely because covenant was not supported byconsideration did not make it revocable; promissory estoppel canserve as substitute for consideration, which defendant proved;patentee thus legally estopped from revoking covenant.).
  8. 8. 88Example of Pre-AlreadyAssignment of Burdens:Tech. Licensing Corp. v. TechnicolorUSA, Inc., 800 F.Supp.2d 1116(E.D. Cal. 2011)
  9. 9. 99Facts:• Technology Licensing Corporation (“TLC”) sues Technicolorfor infringement of 2 patents. Technicolor counterclaims forDJs of noninfringement and invalidity.Tech. LicensingTech. Licensing (E.D. Cal. 2011)(E.D. Cal. 2011)• Technicolor serves an FRCP 68 Offer of Judgment. TLC filesNotice of Acceptance of that Offer as to “claims by [TLC]against [Technicolor].”• Clerk enters judgment on TLC’s claims. Case thenadministratively closed. Technicolor moves to reopen,asserting its invalidity CC was not encompassed in Offer ofJudgment.
  10. 10. 1010Facts (cont’d):• In response to the Motion to Reopen, TLC offers followingcovenant not to sue: “TLC unconditionally agrees not to sue[Technicolor] for infringement as to any claim of the patents-in-suit based upon the products currently manufactured andsold by [Technicolor].”Tech. LicensingTech. Licensing (E.D. Cal. 2011)(E.D. Cal. 2011)• TLC then moves to dismiss on basis under FRCP 12(b)(1) onbasis of covenant.
  11. 11. 1111Technicolor’s arguments:• Covenant is insufficient because it does not apply to: “(1) itsactivities, specifically inducement of infringement, and (2)future products . . . .”• Re (2), covenant’s use of “currently manufactured” isambiguous and could be interpreted to exclude futureproducts.Tech. LicensingTech. Licensing (E.D. Cal. 2011)(E.D. Cal. 2011)
  12. 12. 1212Court’s rejection of Technicolor’s arguments:• Re (1), TLC acknowledged on reply that its covenant wasbroad enough to encompass activities relating to the coveredproducts. On that basis, court finds no case or controversyas to any of Technicolor’s related activities.Tech. LicensingTech. Licensing (E.D. Cal. 2011)(E.D. Cal. 2011)• Re (2): “To demonstrate a case or controversy, Technicolorwould thus need to provide the court with informationregarding its intention to produce new products in the futurethat might infringe on TLC’s patents. It has not done so.Accordingly, there is no ‘substantial controversy [ ]’ . . . andthe court will grant TLC’s motion to dismiss . . . .”
  13. 13. 1313Already, LLC v. Nike,___ U.S. ___, 133 S.Ct. 721(Jan. 9, 2013)
  14. 14. 1414Procedural History• Already makes line of shoes known as “Sugars” and “SouljaBoys.” Nike files suit, alleging that both lines infringe anddilute its “Air Force I” TM.• Already counterclaims for DJ of trademark invalidity.• 8 months into lawsuit, Nike issues covenant not to sue, thenmoves to dismiss Already’s CC. District court grants motion,and 2d Circuit affirms. Supreme Court grants certiorari.Already, LLC v. NikeAlready, LLC v. Nike
  15. 15. 1515Excerpts from Nike’s Covenant:(133 S.Ct. at 728):“‘[Nike] unconditionally and irrevocably covenants to refrainfrom making any claim(s) or demand(s) . . . against Already orany of its . . . related business entities . . . [including]distributors . . . and employees of such entities and allcustomers . . . on account of any possible cause of actionbased on or involving trademark infringement, unfaircompetition, or dilution, under state or federal law . . . relatingto the NIKE Mark based on the appearance of any ofAlready’s current and/or previous footwear product designs,and any colorable imitations thereof, regardless of whetherthat footwear is produced . . . or otherwise used in commercebefore or after the Effective Date of this Covenant.’”Already, LLC v. NikeAlready, LLC v. Nike
  16. 16. 1616• Voluntary Cessation Doctrine:• “[I]t was Nike’s burden to show that it ‘could not reasonablybe expected’ to resume its enforcement efforts againstAlready. Burden characterized as “formidable.” Id. at 727(citation omitted).• “[O]nce it is ‘absolutely clear’ that challenged conductcannot ‘reasonably be expected to recur,’ the fact that someindividuals may base decisions on ‘conjectural orhypothetical’ speculation does not give rise to the sort of‘concrete’ and ‘actual’ injury necessary to establish ArticleIII standing.” Id. at 730 (emphasis added; citations omitted).Already, LLC v. NikeAlready, LLC v. Nike: Supreme Court’s Analysis: Supreme Court’s Analysis
  17. 17. 1717• “We agree with the Court of Appeals that ‘it is hard to imaginea scenario that would potentially infringe [Nike’s trademark]and yet not fall under the Covenant.’” Id. at 728.• “Given the covenant’s broad language, and given that Alreadyhas asserted no concrete plans to engage in conduct notcovered by the covenant, we can conclude the case is mootbecause the challenged conduct cannot reasonably be expectedto recur.” Id. at 729.Already, LLC v. NikeAlready, LLC v. Nike: Supreme Court’s Analysis: Supreme Court’s Analysis
  18. 18. 1818• “Under the voluntary cessation doctrine, Nike bears the‘formidable burden of showing that it is absolutely clear theallegedly wrongful behavior could not reasonably be expectedto recur.’” Id. at 733 (emphasis added; citation omitted).• “This brief, separate concurrence is written to underscore thatcovenants like the one Nike filed here ought not to be taken asan automatic means for the party who first charged acompetitor with trademark infringement suddenly to abandonthe suit without incurring the risk of an ensuing adverseadjudication.” Id.Already, LLC v. NikeAlready, LLC v. Nike: Justice Kennedy’s: Justice Kennedy’sConcurring OpinionConcurring Opinion
  19. 19. 1919• “The formidable burden to show the case is moot ought torequire the trademark holder, at the outset, to make asubstantial showing that the business of the competitor and itssupply network will not be disrupted or weakened by satellitelitigation over mootness or by any threat latent in the terms ofthe covenant itself.” Id. at 734.Already, LLC v. NikeAlready, LLC v. Nike: Justice Kennedy’s: Justice Kennedy’sConcurring OpinionConcurring Opinion• “It would be most unfair to allow the party who commencesthe suit to use its delivery of a covenant not to sue as anopportunity to force a competitor to expose its future businessplans or to otherwise disadvantage the competitor and itsbusiness network, all in aid of deeming moot a suit thetrademark holder itself chose to initiate.” Id.
  20. 20. 2020“Courts should proceed with caution before ruling that theycan be used to terminate litigation. An insistence on the properallocation of the formidable burden on the party assertingmootness is one way to ensure that covenants are not automaticmechanisms for trademark holders to use courts to intimidatecompetitors without, at the same time, assuming the risk thattheir trademark will be found invalid and unenforceable.” 734 (emphasis added).Already, LLC v. NikeAlready, LLC v. Nike: Justice Kennedy’s: Justice Kennedy’sConcurring OpinionConcurring Opinion
  21. 21. 2121Hitachi Koki Co., Ltd. v. TechtronicIndus. Co., Ltd.,No. 1:09:3308-WSD(N.D. Ga. Feb. 6, 2013)
  22. 22. 2222Procedural History• Nov. 2009: Hitachi sues defendants for infringement of 4patents related to tools. Count I of complaint allegesinfringement of U.S. Pat. No. 7,521,892 (“ the ’892 patent”).Defendants (“Ds”) assert counterclaims, including a DJ ofinvalidity of the ’892 Patent.Hitachi KokiHitachi Koki• March 2012: Hitachi moves for dismissal of Count I underFRCP 41(a)(2) and 12(b)(1). Brief in support of motionrecites covenant not to sue, apparently not issued previously.• May 2012: Ds file MSJ of invalidity of ’892 Patent.
  23. 23. 2323“[Hitachi] covenants not to sue [Ds] for infringement of [the ’892patent] based on [Ds’] manufacture, importation, use, sale, and/oroffer for sale, of products on or before March 13, 2012. [Hitachi]covenants not to sue [Ds] for infringement of the ‘892 patent basedon [Ds’] future manufacture, importation, use, sale, and/or offerfor sale, of any and all products being offered for sale by [Ds] onMarch 13, 2012 as well as any products that are the same as orsubstantially identical to a product being offered for sale by [Ds]on March 13, 2012. [Hitachi] covenants not to sue or otherwiseseek to hold [Ds’] customers liable based upon the importation,distribution, use sale and offering for sale of the products that aresubject to this covenant not [to] sue for the infringement of the‘892 patent.” Hitachi Koki, slip op. at 10 (emphasis added).Hitachi’s Covenant Not to SueHitachi’s Covenant Not to Sue
  24. 24. 2424• FRCP 41(a)(2) Not Proper Rule for Voluntarily DismissingLess than All of Case: “Courts uniformly have held that Rule41(a) does not permit the dismissal of individual claims from amulti-claim action but only authorizes the dismissal of an entireaction.” Hitachi Koki, slip op. at 7 (emphasis added). “[T]heproper way for a plaintiff to remove a single claim is to move toamend the complaint under Rule 15.” Id. at 8 & n.2.Hitachi KokiHitachi Koki: ND Ga’s Analysis: ND Ga’s Analysis• Covenant Formalities Still Important: “If the covenant wasnot formally executed and delivered to Defendants, the Courtfinds that a covenant was not issued in this case and thus thereexists a case or controversy regarding validity of the ’892patent. On this ground alone, [Hitachi]’s motion to dismisswould be required to be denied.” Id. at 10 n.3.
  25. 25. 2525• “[T]he covenant does not apply to specific potentially-infringingproducts that Defendants have introduced or will introduce afterMarch 12, 2012.” Id.Hitachi KokiHitachi Koki: ND Ga’s Analysis: ND Ga’s Analysis• “[The covenant] does not cover any product manufactured,imported, used, sold, or offered for sale using the ‘892 patenttechnology that is not substantially similar to Defendants’products as they existed on March 13, 2012.” Id. at 12.• An employee of one of the Ds testified that they have “concreteplans” to launch products in 2012 that use the ’892 patenttechnology but yet that are not “‘the same as or substantiallyidentical to’ products existing as of March 13, 2012.” Id. at 11.
  26. 26. 2626Hitachi KokiHitachi Koki: ND Ga’s Analysis: ND Ga’s Analysis• Ds’ MSJ of Obviousness Denied for failure to present evidenceregarding the level of ordinary skill in the art. Id. at 16-17.• RESULT: Court denies Hitachi’s motion. Issue of validity ofthe ’892 patent remains a “live” one such that court can considerDs’ MSJ of invalidity (obviousness) of that patent. Id. at 13.Court left open the possibility that Hitachi could frame a morecomprehensive covenant to “remove the threat of litigationagainst Defendants for infringement of the ’892 patent,” but thatthe covenant Hitachi presented in its motion was not such acovenant. Id. at 12 n.4.
  27. 27. 2727Take-Away Points1. The content of any covenant not to sue will be closely scrutinizedin future cases. Learn from Hitachi’s mistakes to draft broad,effective covenant for patent cases that will comply with Alreadyv. Nike, and follow Nike’s example for TM cases.2. Formalities are still important. Ensure that a covenant is signedand delivered to opponent prior to any dismissal motion.3. Counsel client about risk of irrevocability of covenant, oncemade, and about its application to continuations in patent cases.4. Get it right the first time. Hitachi could have had its ’892 patentinvalidated but dodged a bullet on summary judgment.
  28. 28. 2828THE ENDTHE END