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United States Court of Appeals for the Second Circuit
May 14, 2012, Argued; July 10, 2012, Decided
Docket No. 11-4462-cv
[***1463] [*164] Gerard E. Lynch, Circuit Judge:
This case requires us to consider whether a clause in a settlement agreement which bars a patent licensee from later challenging the patent's validity is void for public policy reasons under the Supreme Court's decision in Lear, Inc. v. Adkins, 395 U.S. 653, 89 S. Ct. 1902, 23 L. Ed. 2d 610 (1969), where the parties entered into the agreement after an accusation of infringement by the patent owner but prior to any litigation. We hold that, in these circumstances, such a no-challenge clause is void under Lear. We therefore affirm the decision of the United States District Court for the Southern District of New York (Denise Cote, J.) dismissing the complaint in this action.
According to the First Amended Complaint ("Complaint"),1 plaintiff-appellant Rates Technology Inc. ("RTI") is the owner of two patents (the "Patents") that cover inventions relating to the automatic routing of telephone calls based upon cost. RTI alleges that it is well known in the telecommunications industry "for its policy of settling patent infringement claims in accordance with a one-time payment tiered pricing structure based on the size of the accused infringer measured [**3] by its annual sales." In or around April 2007, RTI became aware that the Patents were being infringed by defendant-appellee Speakeasy, Inc. ("Speakeasy"), a telecommunications company that provided broadband, voice, and data services to businesses. RTI notified Speakeasy that it believed Speakeasy was infringing the Patents and, in accordance with company policy, offered to release Speakeasy from liability in exchange for a one-time payment consistent with RTI's tiered pricing structure.
On April 30, 2007, RTI and Speakeasy entered into an agreement, which was styled as a "Covenant [**4] Not to Sue" (hereinafter, the "Agreement"). The Agreement began with a series of recitals, which declared that (1) RTI is the holder of the Patents; (2) RTI "has alleged that products, services, and technology made, used, sold, offered for sale and imported by Speakeasy . . . infringe" the Patents; (3) "Speakeasy has denied any possible infringement"; and (4) "the parties desire to settle their potential differences on the terms and conditions set forth" in the Agreement. The Agreement then provided that RTI "release[d] and promise[d] not to sue Speakeasy" for any past or future infringement of the Patents. In exchange, Speakeasy agreed to make a one-time payment of $475,000 to RTI. The Agreement further provided that "Speakeasy acknowledges the validity, and enforceability [***1464] of the Patents. Speakeasy does not admit that it has infringed the Patents."
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685 F.3d 163 *; 2012 U.S. App. LEXIS 14087 **; 103 U.S.P.Q.2D (BNA) 1462 ***; 2012 WL 2765081
RATES TECHNOLOGY INC., Plaintiff-Appellant, -v.- SPEAKEASY, INC., BEST BUY CO., INC., SPEAKEASY BROADBAND SERVICES, LLC, MEGAPATH, INC., COVAD COMMUNICATIONS COMPANY, COVAD COMMUNICATIONS GROUP, INC., CCGI HOLDING CORPORATION, PLATINUM EQUITY, LLC, Defendants-Appellees.
Subsequent History: US Supreme Court certiorari denied by Rates Tech. v. Speakeasy, Inc., 133 S. Ct. 932, 184 L. Ed. 2d 724, 2013 U.S. LEXIS 874 (U.S., Jan. 14, 2013)
Prior History: [**1] Plaintiff-appellant Rates Technology Inc. appeals from a judgment granting defendants-appellees' motion to dismiss entered by the United States District Court for the Southern District of New York (Denise Cote, J.) on May 10, 2011. We hold that, under the Supreme Court's decision in Lear, Inc. v. Adkins, 395 U.S. 653, 89 S. Ct. 1902, 23 L. Ed. 2d 610 (1969), a clause in a settlement agreement that bars a patent licensee from later challenging the patent's validity is void for public policy reasons if the settlement was entered into prior to the initiation of litigation between the parties. We accordingly AFFIRM the district court's judgment.
Rates Tech., Inc. v. Speakeasy, Inc., 2011 U.S. Dist. LEXIS 49214 (S.D.N.Y., May 9, 2011)
Disposition: The court affirmed the district court's decision.
patent, infringement, parties, no-challenge, invalid, licensee, settlement, settlement agreement, challenging, public interest, patent infringement, license agreement, discovery, courts, royalties, covenant, estoppel, license, favoring, settlement of litigation, district court, pre-litigation, unenforceable, disputes, validity of the patent, clauses, lawsuit, federal policy, patent law, litigating
Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Appeals, Standards of Review, General Overview, Business & Corporate Compliance, Ownership, Conveyances, Assignor & Licensee Estoppel, Patent Law, Defenses, Patent Invalidity, US Patent & Trademark Office Proceedings, Presumption of Validity, Licenses, Judgments, Preclusion of Judgments, Res Judicata, Infringement Actions, Preclusion, Entry of Judgments, Consent Decrees, Settlements, Effect of Agreements, Settlement Agreements, Validity of Agreements, Contracts Law, Types of Contracts, Covenants, Governments, Courts, Judicial Precedent