Would a Covenant Not to Sue Defeat Declaratory Counterclaims? Depends on the Coverage of the Covenant, Says the Federal Circuit.

In Revolution Eyeware, Inc. v. Aspex Eyewere, Inc., No. 2008-1050 (Fed. Cir. Feb. 13, 2008), the Federal Circuit reversed the district court’s holding that “Revolution’s covenant not to sue for past infringement ousted the court of jurisdiction of Aspex’s counterclaims.” Slip. op. at 11.

Relevant Facts/History:

Revolution sued Aspex for patent infringement, and Aspex countered with declaratory counterclaims. After the district court set the trial for the issues of unenforceability and invalidity, Revolution sent Aspex a covenant not sue, and then filed a motion to dismiss the counterclaims for absence of the requisite case or controversy. The district court granted the motion, and Aspex appealed. The Federal Circuit reversed and remanded.

Revolution’s Covenant Not to Sue:

“Revolution and counter-defendant Gary Zelman hereby unconditionally covenant not to sue Aspex for patent infringement under the ‘913 patent based upon any activities and/or products made, used, or sold on or before the dismissal of this action (03-5965 case).”

Issue:

“This case relates to a covenant not to sue for past infringement, and its effect on jurisdiction of declaratory counterclaims applicable to future infringement.” Slip. op. at 1.

Holding:

If the covenant not to sue covers the products sold before or after the covenant, there would be absence of continuing case or controversy. If, however, the covenant not to sue covers the products sold before the covenant only, there would be continuing case or controversy.

Judge Newman summarized this point in a clear and concise way: “In all of these [prior] cases, the covenants covered the current products whether they were produced and sold before or after the covenant, and the courts found absence of continuing case or controversy. In contrast, Revolution offered no covenant on the current products, stating that it is not obligated to 'repudiate suit for future infringement.' Br. at 24. We agree that such is its right. However, by retaining that right, Revolution preserved this controversy at a level of 'sufficient immediacy and reality' to allow Aspex to pursue its declaratory judgment counterclaims.” Slip. op. at 11 (emphasis added).

Commentary:

This is good news for accused infringers, and disappointing one for patentees who employ a “hit-and-run” tactic. This opinion makes perfect sense. If a patentee wants to assert a patent, it better conduct pre-litigation due diligence thoroughly. Once a lawsuit is instituted, the patentee cannot simply grant a covenant not to sue based on past infringement to dismiss declaratory counterclaims, while reserving its right to sue for future sales. Finally, although this case relates to declaratory counterclaims, the same rationale also applies to declaratory judgment actions.