What Did the Parties Agree On?

Federal Circuit provides terms of disputed settlement agreement

In a case involving a patent to a plasma cutting technology, the Federal Circuit disagreed with a district court’s interpretation of a settlement between the parties.

The parties indicated to the district court that their dispute was settled, but later could not agree on the terms of a formal written agreement effectuating the settlement. The sticking point was whether unknown, future products would be covered by the settlement. The district court felt that they would not be. A majority of the Federal Circuit panel, Judges Dyk and Reyna, felt that they were part of the settlement. Judge Newman, in dissent, would have held that there was no agreement and, thus, no settlement.

The exchange prior to the process of formulating a written agreement involved an email from the patent owner stating terms of payment and indicating, “The parties will enter into mutual releases which will include releasing … downstream customers from liability for infringing the patent at issue.” The accused infringer responded, “Provided that the release also covers future claims, then it looks like we have a settlement. I.e., the agreement includes a covenant not to sue (or license or similar) to cover Defendants and their downstream customers/users, from future infringement claims.” The patent owner then informed the district court that the parties had settled.

The majority interpreted these exchanges to mean that the patent owner agreed to license all future products of the accused infringer, regardless of how similar those products were to the accused products. There appears to be support for that position, as the patent owner’s initial proposal and the accused infringer's reply did not speak in terms of “products” but instead spoke of parties released. The district court’s view also has support, since the reference to “downstream customers” must have meant those customers buying the accused infringer’s current products. Judge Newman’s view also has support because “which products” could easily be viewed as a missing, essential term of the agreement.

Did the Federal Circuit make the right cut?