Last Thursday, in TransCore, LP v. Electronic Transaction Consultants Corp., the Federal Circuit held that three patents included under a covenant not to sue, and one that was not, were all covered by rights mirrored by a non-exclusive license of the patents, and therefore were subject to patent exhaustion.
A quick summary: TransCore had previously entered into a settlement agreement with a company called Mark IV. That settlement agreement included a covenant not to sue based on infringement of three specifically named patents (among others). Mark IV subsequently entered into an agreement with ETC, whereby ETC purchased certain automated toll collection systems which incorporated technology covered by three of the patents included under the covenant not to sue, as well as a fourth patent that was deemed unusable without one of the patents specifically named in the covenant. TransCore sued ETC for patent infringement, which gave rise to the applicable question: Was the sale of the systems by Mark IV to ETC “authorized” by TransCore, in that the right to sell the patented technology was ”licensed” under the covenant not to sue, and therefore TransCore’s patent rights with respect to those patents were exhausted? The CAFC answered YES.
The court held that a license is nothing other than a covenant not to sue for infringement, and therefore a covenant not to sue is essentially the same thing as a license, conferring the right to use, make, or sell products with the use of technology made available by the patent. Therefore, a covenant not to sue exhausts a patentees patent rights with respect to those patents.
This may not change the way licenses are written, but it certainly will affect any grants of a covenant not to sue going forward.
We haven’t seen the end of this one. The parties have 30 days to file a petition for a panel rehearing.