On Friday, the Federal Circuit issued an opinion in Wi-LAN USA, Inc. v. Ericsson, Inc., which highlights the importance of using care when granting rights to or under patents. The interesting facts in this case resulted in two contradictory opinions from two district courts regarding the scope of an agreement pertaining to rights under certain patents. These opinions illustrate the potential dangers of unintended consequences that may arise from imprecise drafting in patent agreements.

In 2008, Wi-LAN and Ericsson entered into an agreement under which Ericsson was granted certain rights to patents owned by Wi-LAN (the “Agreement”). At the time of the agreement, Wi-LAN had accused Ericsson’s Universal Mobile Telecommunications System (“UMTS”) / High Speed Packet Access (“HSPA”) products of infringing four of Wi-LAN’s patents. These patents ended up being defined as the “WI-LAN PATENTS” under the Agreement.

After entering into the Agreement regarding the four WI-LAN PATENTS, Wi-LAN acquired four additional patents and subsequently filed suit against Ericsson in the Eastern District of Texas alleging Ericsson’s UMTS/HSPA products of infringing those newly acquired patents. Two years after filing the Texas action, Wi-LAN brought a second suit against Ericsson in the Southern District of Florida. In that case, Wi-LAN alleged that certain Ericsson non-UMTS products infringed three other Wi-LAN patents that issued after the parties entered in to the Agreement. In both cases, Ericsson raised defenses and counterclaims that Wi-LAN had violated the Agreement and that Ericsson was entitled to a license under the asserted patents pursuant to the terms of the Agreement.

The dispute centered around three provisions: a Non-Assert Provision, a Damages Provision, and a Most Favored Licensee Provision.

The Non-Assert Provision provided that Wi-LAN would not bring an action against “[Ericsson] PRODUCTS which would, but for this Agreement, infringe any WI-LAN PATENTS.”

The Damages Provision provided that “With respect to patents other than the WI-LAN PATENTS … WI-LAN hereby agrees that no damages shall accrue against [Ericsson] … for infringement of any patents that, on or after the EFFECTIVE DATE, are owned or controlled by WI-LAN where liability results from…[Ericsson’s] UMTS/HSPA PRODUCTS….”

The Most Favored Licensee Provision provided that “In the event Wi-LAN owns or controls the licensing of patents not already addressed under this Agreement and which are infringed or alleged to be infringed by UMTS/HSPA PRODUCTS, … WI-LAN will grant to [Ericsson] … a license at most-favored licensee status.”

In both the Texas and Florida actions, Ericsson filed a motion for summary judgment based on the Agreement. In Texas, Ericsson argued that the Non-Assert Provision barred Wi-LAN from bringing any patent infringement action against Ericsson’s UMTS/HSPA products and that Wi-LAN was obligated to license Ericsson under the Most Favored Licensee Provision. In Florida, Ericsson argued that the Most Favored Licensee Provision required Wi-LAN to grant Ericsson a license to the patents asserted in Texas. And, since the most favorable license Wi-LAN granted included the patents asserted in each of the Texas and Florida actions, Ericsson was entitled to a license to all of the patents asserted by Wi-LAN.

The Texas court found in favor of Wi-LAN and concluded that the Non-Assert Provision of the Agreement only concerned the four WI-LAN PATENTS and that the Most Favored Licensee Provision did not apply. The Florida court found in favor Ericsson and concluded that Wi-LAN was obligated to license Ericsson under the asserted patents and the patents asserted in the Texas action.

On appeal, the Federal Circuit agreed with the Texas court and concluded that Wi-LAN was not precluded from asserting the four newly acquired patents in the Texas action and was neither obligated to license the patents asserted in the Texas action nor the patents asserted in the Florida action. In evaluating the obligations and intent of the parties under the Agreement, the Federal Circuit compared the language of the Non-Assert Provision to the language of the Damages Provision. The court noted that while the Non-Assert Provision only stated that Wi-LAN would not assert an action against Ericsson’s UMTS/HSPA products that infringe the WI-LAN PATENTS, the Damages Provision permitted Wi-LAN to seek damages for the sale of UMTS/HSPA products that infringed patents other than the WI-LAN PATENTS.

Based on the language used in those provisions, the Federal Circuit inferred that the Non-Assert Provision was only intended to apply to the WI-LAN PATENTS and not any other Wi-LAN patents. As to the Most Favored Licensee Provision, the court concluded that this provision did not apply to the patents asserted in either of the Texas or Florida actions because the provision were drafted in the present tense and was directed to patents that “Wi-LAN owned or controlled as of the effective date of the [Agreement].” As a result, the Federal Circuit concluded this provision would not extend to after arising or future Wi-LAN patents.

The lesson learned, or reaffirmed, is the need to use care when drafting agreements involving patents and the language employed in identifying what products and patents are covered under the agreement. The use of inconsistent verbiage, varying tense usage, or conflicting terms may lead to unintended and significant consequences.

Christopher H. Strate is an Associate in the Gibbons Intellectual Property Department. Samuel H. Megerditchian, Counsel to the Gibbons Intellectual Property Department, co-authored this post.