Posted on November 13, 2012 by Andrew P. MacArthur

Is Lear Still King?

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.


Andrew P. MacArthur is an Associate in the Gibbons Intellectual Property Department. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, co-authored this post.
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Posted on August 2, 2011 by Ralph A. Dengler

The Intellectual Property Exchange International: A Market for IP Assets?

With the importance of Intellectual Property to a company’s bottom line, maximizing that value continues to command a prominent role. “Monetizing” an IP asset, such as a patent, is typically done by licensing, where the patent owner, or licensor, and the party wishing to use the patented technology, the prospective licensee, negotiate conditions and terms of use of the patented technology.

The Chicago-based Intellectual Property Exchange International (“IPXI”), debuting in 2012, bills itself as “[T]he world’s first financial exchange focused on IP rights.” The IPXI will strive to eliminate current licensing inefficiencies like cost, lack of transparency and time consumption, by creating an open market for IP assets, where the intangible IP asset will become a commodity via a Unit License Right (“ULR”) contract. A ULR contract is the IPXI mechanism by which IP asset owners will be able to license technology in a non-discriminatory manner using a standard form license and on publicly disclosed terms. Each ULR contract will give the buyer the right to use a pre-established unit of IP, such as the right to make or sell up to a certain quantity of product covered by the asset.

The process for listing an IP asset on the IPXI will be analogous to that of an initial public offering on other financial exchanges: an IP owner (or “Sponsor”) will submit the proposed asset for consideration and consultation, due diligence by a “Selection Committee” at the IPXI will take place, including publication on the IPXI website of the proposed ULR contract and a comment period by IPXI Members. Following any revisions to the draft proposal, the Selection Committee will render a final decision about the ULR contract. If in agreement, the Sponsor then will assign or exclusively license the asset to a special purpose vehicle (“SPV”) formed by an IPXI affiliate, which will serve as master licensor for offering the ULR contracts. (Think of the SPV as a specialist on a financial exchange that is trying to link up buyers and sellers of a certain commodity.) Parties to the ULR contract agree to arbitrate any disputes, with the SPV ensuring compliance with the ULR contract terms and overseeing any necessary arbitration.

The start up of the IPXI will not be without scrutiny and skepticism. Numerous questions concerning the interaction of the IPXI with traditional IP valuation, licensing and litigation paradigms certainly come to mind, and more skeptical eyes will be watching the IPXI to see how these issues play out. Moreover, as with traditional licensing, “one size does not fit all,” so the IPXI may not be right for every IP asset. Gibbons will stay at the forefront of all these developments. And for additional information about the IPXI, please go to the IPXI website at www.ipxi.com.


Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, assisted in the preparation of this post.
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