In a recent decision, the Second Circuit crowned Lear, Inc. v. Adkins, 395 U.S. 653 (1969), but a petition to the Supreme Court has the possibility of dethroning this ruling and Lear.
In Lear, the Court held that a licensee could challenge the validity of patents despite an agreement to the contrary. Contract law, the Court noted, must yield to the public’s interest in ensuring monopolies do not go unchecked. Lear, Inc., 395 U.S. at 670-71. Since that decision, courts have taken varied approaches to Lear. See, e.g., Licensee Patent Validity Challenges Following MedImmune: Implications for Patent Licensing,. 3 HASTINGS SCI. & TECH. L.J. 243-439 (2011).
Recently in Rates Tech. Inc. v. Speakeasy, Inc., et al., the Second Circuit held that a provision to not challenge validity entered into prior to litigation, but after an accusation of infringement is void under Lear. Speakeasy (which at the time was owned by Best Buy) previously entered into a license agreement with Rates Technology Inc. (“RTI”) where it agreed not to challenge the validity of RTI’s patents. Three years later Speakeasy was sold to several entities. RTI thereafter alleged that these entities infringed its patents. As such they filed a declaratory judgment action of invalidity and non-infringement. In conjunction with that, RTI filed a complaint against Speakeasy (and others) alleging breach of contract by virtue of Speakeasy allegedly providing information to the several entities concerning the validity of RTI’s patents.
In affirming the dismissal of RTI’s complaint and finding pre-litigation “no challenge” provisions void under Lear, the appeals panel reasoned that there is no discovery available (like in litigation) to properly assess and then challenge validity. The Court did, however, leave open whether similar post-litigation “no-challenge” provisions could be enforced.
The kingdom of Lear, however, might be short lived as RTI earlier this month petitioned for a writ of certiorari. RTI believes that the Second Circuit’s decision conflicts with the Federal Circuit’s ruling in Flex-Foot Inc. v. CRP Inc., 238 F.3d 1362 (Fed. Cir. 2001), which held that the enforcement of settlement agreements and res judicata outweigh the policy of challenging patent validity. Just recently, the Supreme Court requested that Speakeasy respond to the petition by early December. As background, generally most of the respondents (e.g., Speakeasy) initially waive their right to respond; however, before deciding whether to grant or deny certiorari, the Court in a select number of cases may request a response.
Gibbons will stay tuned to developments on this important front.