Sunday, July 10, 2011


Leviton Manufacturing Co., Inc. (“Leviton”), represented by Wilson Sonsini, lost an appeal about the grant of a preliminary injunction to enforce a forum selection clause in a settlement agreement which resolved a prior lawsuit brought by Leviton against General Protecht Group, Inc., formerly known as Zhejiang Dongzheng Electrical Co. (“GPG”).

At issue in the Leviton case:

On appeal, Leviton essentially makes three arguments: (1) the forum selection clause does not apply because it does not extend to cases in which the only relationship the Settlement Agreement bears to the subsequent dispute is that it possibly gives rise to a defense; (2) even if the forum selection clause could apply in such cases, the Settlement Agreement does not give rise to an implied license defense in the present case as a matter of law; and (3) the district court erred in its appli- cation of the remaining three preliminary injunction factors.

The procedural law of the CAFC applied:

In a case such as this, involving an injunction against partici- pation in a district court suit for patent infringement and an ITC investigation under section 337 of the Tariff Act, this court’s procedural law applies. Id. “Under Federal Circuit law, this court sustains a grant or denial of a preliminary injunction unless the district court abused its discretion, or based its decision on an erroneous legal standard or clearly erroneous findings of fact.” Id.

Of the forum selection clause:

As Leviton argues, if all that is required is a license and a bare allegation that it provides a defense, then virtually every subsequent dispute between contracting parties would trigger such a forum selection clause. On the other hand, as GPG argues, if a party seeking to enforce a forum selection clause in the context of a license defense must first establish, conclusively, that it would win the license defense, such a forum selection clause would be meaningless because if the defense should fail, then the merits would have been litigated in a forum other than that which was bargained for; and if the de- fense should succeed, there would likely be nothing left to litigate once the case arrives in the proper forum.
In Texas Instruments, this court held that “[p]atent infringement disputes do arise from license agreements” and that where “the governing law clause of the license agreement is not limited to license related issues such as the amount of royalty due, term of agreement, and cross licensing[, that clause,] . . . as in any patent license agreement, necessarily covers disputes concerning patent issues.” 231 F.3d at 1331. This case presents a non- frivolous dispute regarding the scope of a patent license. The outcome of that dispute will determine whether the patentee can sustain its suit for infringement. Thus, there is no question in this case that the dispute “relates to or arises out of” the Settlement Agreement. The forum selection clause therefore applies, and the district court did not abuse its discretion in granting the preliminary injunction on that basis.

Of implied license:

The controlling case on the implied license question presented here is TransCore v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009). (...)

The court found that TransCore’s rights in the previ- ously asserted patents, as against MARK IV technology, were exhausted by its covenant not to sue MARK IV. Id. at 1274. As to the continuation patent, the court found that it was impliedly licensed to MARK IV and that the implied license also exhausted TransCore’s rights in that patent as against the MARK IV technology being installed by ETC. Id. at 1278-79. (...)

The TransCore court then held that “Mark IV’s rights under its implied license to the [continuation patent] are necessarily coextensive with the rights it received in the TransCore-Mark IV license agreement.” Id. at 1279-80.

Leviton argued against application of TransCore:

On appeal, Leviton argues that TransCore does not control the present case because: (1) TransCore is limited to cases where the claims of the continuation are broader than and therefore necessary to practice the claims of the expressly licensed patents; (2) the manifest mutual intent of the parties in the present case was to convey narrower rights than were conveyed in TransCore such that no license can be implied here; and (3) such a result conflicts with this court’s holding in the earlier decided case of Jacobs v. Nintendo of America, 370 F.3d 1097 (Fed. Cir. 2004). We address each argument in turn.

The CAFC noted:

Leviton cannot deny, however, that the newly asserted continuations are based on the same disclosure as the previously licensed patents and that, by definition, the continuations can claim no new invention not already supported in the earlier issued patents. Moreover, the same products accused in the earlier suit are accused here.
TransCore prohibits a patent licensor from derogating from rights granted under the license by “taking back in any extent that for which [it] has already received consid- eration.” 563 F.3d at 1279 (quotation omitted).

Mutual intent:

Leviton argues that the mutual intent of the parties in the present case distinguishes this case from the facts of TransCore. Leviton contends that a number of provi- sions in the Settlement Agreement make clear that the parties intended that settlement to be merely a “walk away.” Appellant’s Reply Br. at 8. For instance, Leviton refers to provisions preserving Leviton’s right to sue on related patents and GPG’s right to rely on the prior claim constructions and its inequitable conduct defense. Levi- ton argues that each of these provisions, by anticipating future litigation, evidences mutual intent not to grant any rights that would imply a license to any other patents.
TransCore is instructive in addressing Leviton’s ar- guments. The Settlement Agreement there stated that “This Covenant Not To Sue shall not apply to any other patents issued as of the effective date of this Agreement or to be issued in the future.” TransCore, 563 F.3d at 1273. Nonetheless, this court found that, by filing the subsequent suit, TransCore had derogated from the right it previously granted and that therefore the continuation patent was impliedly licensed.
The provisions to which Leviton points manifest a mutual understanding that future litigation between the parties concerning related patents was a distinct possibil- ity. But this does not address the question of whether the parties intended that continuations could be asserted against the same products. At best, the Settlement Agreement is silent on this point. At worst, the careful establishment of rules of engagement without any men-tion of later suits involving the same products and related patents shows that Leviton did not reserve this right. Expressio unius exclusio alterius. The question of mutual intent in the present case is controlled by TransCore.

Of Jacobs:

Indeed, at oral argument, Leviton admitted that Jacobs did not hold that a covenant not to sue did not give rise to an implied license, and stated that Jacobs supported that view only “by negative inference.” Oral Arg. at 11:27- 12:18 available at default.aspx?fl=2011-1115.mp3. Even if Leviton’s reading of the import of that statement were correct, this would not be a direct conflict of panel opinions as is necessary to invoke this court’s rule of precedence. See Newell Com- panies, Inc. v. Kenney Mfg. Co., 864 F.2d 757, 765 (Fed. Cir. 1998).
We find nothing in the reasoning or holding of Jacobs that conflicts with TransCore or supports, by “negative inference” or otherwise, the proposition advanced by Leviton.

Related to forum selection:

The district court also found that the public interest was best served by entering the preliminary injunction. The district court largely relied on M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972), for the proposition that forum selection clauses “are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable’ under the circum- stances.” The district court understood this statement to indicate that enforcement of forum selection clauses is, generally, in the public interest.


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