The Plain Meaning of a Covenant Not to Sue

How can you draft a covenant not to sue for patent infringement without agreeing to restrictions that will prevent you from enforcing your patent rights against some unknown party in the future? In Securus Technologies Inc. v. Global Tel*Link Corp., Nos. 2016-1470, 2016-1506 (Jan 26, 2017), the Federal Circuit held that the plain and ordinary meaning of a covenant not to sue in a settlement agreement justified a district court’s summary judgment dismissing a cause of action for patent infringement.

In 2009, Securus had settled a patent infringement lawsuit it had brought against various entities for allegedly infringing its patents. In that settlement, Securus gave the suit entities a covenant not to sue the entity “or its affiliates” for infringement of its patents until September 18, 2014. One of those entities was acquired by Global Tel *Link (GTL) in 2010; Securus sued GTL for infringing its patents in 2013.

The District Court had found “that GTL qualified as an affiliate of PCS and that the covenant therefore protected GTL from Securus’s suit.” The Federal Circuit agreed, because the plain and ordinary meaning of “affiliate” encompassed GTL. And not only did the plain and ordinary meaning of “affiliate” encompass a corporate parent, but the court rejected Securus’s argument that the agreement’s reference to “Securus’s ‘affiliates, subsidiaries and parent corporations’ as separate entities” meant that a parent corporation was not an affiliate. The court explained that

it is not unusual for legal documents to use overlapping language in order to ensure against gaps intended coverage. Overlapping terms are frequently found in documents such as wills (“give, bequeath, and devise”), contracts of sale (“grant, bargain, sell and convey”), and releases (“remise, release, and forever discharge”). That appears to be the role of the reference in the 2009 contract to Securus’s covenant not to sue “on behalf of itself and its former and present affiliates, subsidiaries and parent corporations, successors and assigns.”

As a side note, the court also rejected GTL’s argument that it had made an adequate showing to recover attorneys fees. GTL had failed to present testimony and evidence to support its request.

Lessons for Practice

Absent explicit exclusionary language, expect a covenant not to sue to be construed broadly. Often a patent owner, concerned about giving up its rights to enforce its patents against third parties, will craft very careful language when providing a covenant not to sue in a settlement agreement. A patent owner can carve out future acquirers, categories of entities, or even specific companies.  The patent owner did not do so here.

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