Licence or covenant Is a covenant not to

Licence or covenant? Is a covenant not to sue the same thing as a licence? Mark Anderson Solicitor (Attorney), Oxford, UK www. andlaw. eu www. ipdraughts. wordpress. com © Anderson Law LLP, 2013 Slide www. andlaw. eu

Licence or covenant? Similarities with co-existence agts? • Covenants not to sue (CNTS) can be type of IP agreement • CNTS used in settlement of IP disputes • CNTS not the same as granting a licence? – To be discussed – But can be used for all types of IP (not just TMs) © Anderson Law LLP, 2013 Slide 2 www. andlaw. eu

Licence or covenant? Extensive legal research • Readers’ comments on our blog – www. ipdraughts. wordpress. com • Twitter network – Pointed to academic article on US copyright law • Asked Robin Jacob (in the corridor) • Other bits and pieces – Some recent US case law that touches on this point © Anderson Law LLP, 2013 Slide 3 www. andlaw. eu

Licence or covenant? “Executive summary” • CNTS usage to deal with issues, US litigation – Migrated into some non-contentious IP agreements • Reasons for using CNTS rather than licence vary, depending on who you ask • Deep questions about the nature of a licence – Is a licence a property right (or just contractual)? – Is a CNTS a property right (or just contractual)? © Anderson Law LLP, 2013 Slide 4 www. andlaw. eu

Licence or covenant? Usage in US litigation: Nike case • Already, LLC, dba YUMS v. Nike, Inc. – US Supreme Court, decided January 9, 2013 (11– 982) – Held: Application of the voluntary cessation doctrine shows that this case is moot… [CNTS] suffices to meet the burden imposed by the doctrine. The covenant is unconditional and irrevocable. It prohibits Nike from filing suit or making any claim or demand… © Anderson Law LLP, 2013 Slide 5 www. andlaw. eu

Licence or covenant? Wording of the Nike covenant “[Nike] unconditionally and irrevocably covenants to refrain from making any claim(s) or demand(s). . . against Already. . . [including] distributors. . . and employees of such entities and all customers. . . on account of any possible cause of action based on or involving trademark infringement, unfair competition, or dilution, under state or federal law. . . relating to the NIKE Mark based on the appearance of any of Already’s current and/or previous footwear product designs, and any colorable imitations thereof, regardless of whether that footwear is produced. . . or otherwise used in commerce before or after the Effective Date of this Covenant. ” © Anderson Law LLP, 2013 Slide 6 www. andlaw. eu

Licence or covenant? CNTS and insolvency: Spansion • In re Spansion – 3 rd Circuit, US Court of Appeals 2012 “Spansion is willing to dismiss the ITC action against Apple, and will not re-file the ITC action or another action related to one or more of the same patents against Apple, in consideration of the following: Provided that neither Spansion nor any successor in interest …do not bring an action of any nature asserting any such patent before any legal …tribunal that has …authority to adjudicate such action …against Apple or any Apple product, Apple agrees Spansion will not be disbarred as an Apple supplier …” © Anderson Law LLP, 2013 Slide 7 www. andlaw. eu

Licence or covenant? What happened next? • Spansion enters bankruptcy proceedings – Trustee argues can reject letter agreement as an executory contract (11 U. S. C. § 365) – Bankruptcy court agrees – Apple argues this is a licence that survives bankruptcy (11 U. S. C. § 365(n)). • Appealed to 3 rd circuit, US Court of Appeals – Yes, this is a licence, because… © Anderson Law LLP, 2013 Slide 8 www. andlaw. eu

Licence or covenant? Authorities quoted by Co. A "[A] license. . . [is] a mere waiver of the right to sue by the patentee. " De Forest Radio Tel. & Tel. Co. v. United States, 273 U. S. 236, 242 (1927). A license need not be a formal grant, but is instead a "consent [ ] to [the] use of the patent in making or using it, or selling it. . . and a defense to an action for a tort. " Id. at 241. The Court of Appeals for the Federal Circuit explained that the inquiry focuses on what the agreement authorizes, not whether the language is couched in terms of a license or a covenant not to sue; effectively the two are equivalent. Trans. Core, LP v. Elec. Transaction Consultants Corp. , 563 F. 3 d 1271, 1275 -76 (Fed. Cir. 2009). © Anderson Law LLP, 2013 Slide 9 www. andlaw. eu

Licence or covenant? So why do people think they are different? • CNTS avoids some of the legal “baggage” of licences? Eg: – Not binding on subsequent owners of IP • Can’t register a CNTS at a Patent Office? – No implied warranties and obligations • Eg title, sue infringers, provide support to licensee – No exhaustion of rights – Avoids IP owner being in breach: • of exclusive licence? • of ‘most favoured licensee’ term (in non-exclusive lic) © Anderson Law LLP, 2013 Slide 10 www. andlaw. eu

Licence or covenant? Other perceived differences • Psychology and public relations – “Couched as a peace treaty, a promise to not go on the offensive, the party making the covenant not to sue can lose sight of the fact that it has just negotiated a license” – “I have taken a licence = you have a right. You have covenanted not to sue = your claim has no foundation. ” • Revenue recognition – from the perspective of the IP holder the entire revenue from the [CNTS] deal could be recognized immediately, whereas revenues from a royalty (even if prepaid) would be recognized over the term of the license grant. © Anderson Law LLP, 2013 Slide 11 www. andlaw. eu

Licence or covenant? Licence as property right • Shorthand for bundle of rights that are more than contractual obligation not to sue • What is a property right? – Can be asserted against the world, unlike a contractual right – Bell, Modern Law of Property in England Wales • Others – Transferrable; right to exclude others; divisible © Anderson Law LLP, 2013 Slide 12 www. andlaw. eu

Licence or covenant? The traditional English law approach • Licence is merely permission to do act which would otherwise infringe the IP – Prof Sir R Jacob in corridor (paraphrased) • Licence is a right “under” the IP and not a right “in” the IP – Eg see Insituform v Inliner [1992] RPC 83 – Therefore is not a property right? • Terms not implied into licence? © Anderson Law LLP, 2013 Slide 13 www. andlaw. eu

Licence or covenant? Other countries view it differently? • US seems to view licence as property right – “A License is Not a 'Contract Not to Sue': Disentangling Property and Contract in the Law of Copyright Licenses” by Christopher M. Newman, George Mason University School of Law, Feb 24, 2012 • French IP law seems to imply obligations on licensor to support licensee, eg – Supply improvements and related know-how – Sue infringers © Anderson Law LLP, 2013 Slide 14 www. andlaw. eu

Licence or covenant? Several possibilities Is a licence a property right? YES So is CNTS © Anderson Law LLP, 2013 NO Unlike a CNTS Slide 15 Nor is CNTS www. andlaw. eu

LICENSOR

Licence or covenant? What is a covenant? A. Something that Harrison Ford was searching for in that film? B. A promise in land law that may be binding on subsequent owners of the land? C. A promise made under seal (as a deed)? D. Any contractual promise? © Anderson Law LLP, 2013 Slide 17 www. andlaw. eu

Licence or covenant? What is a licence? A. Something you need before you can drive? B. A permission, attracting no special rights C. Something understood by IP lawyers as more than just a permission, carrying special sui generis rights under IP laws D. A property right, analogous to a lease © Anderson Law LLP, 2013 Slide 18 www. andlaw. eu

Licence or covenant? Is a covenant not to sue: A. A pompous lawyers’ expression that does not convey any specific meaning and allows a court to decide the case on its merits B. A contractual promise that carries with it none of the implied rights and obligations of a licence C. A synonym for a non-exclusive licence D. You hum it, I’ll play it. © Anderson Law LLP, 2013 Slide 19 www. andlaw. eu