Does Your Patent License Mean What You Think It Means?

Licensing patents can be a great way to add value to your product line without the risks associated with research and development. Licenses can also be a great way to monetize your own inventions without the headaches of manufacturing and marketing. However, recent case law has shown that a number of terms used in patent license agreements do not always mean what they appear to mean on their face. This post briefly touches on a few easily misunderstood or otherwise potentially problematic terms.

Did you license more than intended?

Every patent license will have some form of grant language that describes which patent or patents are covered by the license. Typically, this grant language will list one or more patents by their patent numbers. The grant language also often expressly states some form of extension language, e.g., language that states that the license extends to provisionals, parents, renewals, continuations, divisionals, reissues, substitutions, foreign counterparts, continuations-in-part, and the like, of the listed patent(s). However, not every licensor wishes to extend the license to related patents. As such, it is also not uncommon to see license agreements that simply list the patents desired to be licensed and do not expressly include such extension language. However, the Federal Circuit Court, in Cheetah Omni LLC v. AT&T Services, Inc., 949 F.3d 691 (Fed. Cir. 2020), recently held that a license for a patent includes an implied license to all continuation applications absent a provision that expressly excludes such continuations.

In Cheetah Omni LLC, U.S. Pat. No. 6,943,925 (the “’925 patent”) was the parent patent from which a continuation (U.S. Pat. No. 7,145,704; the “‘704 patent”) and a continuation-in-part (U.S. Pat. No. 7,339,714; the “‘714 patent”) each directly stemmed. The ‘704 patent then produced a continuation of its own that became U.S. Pat. No. 7,522,836 (the “‘836 patent”). The license in question specifically identified the ‘714 patent as the licensed patent and then included extension language that stated that the license extended to “all parents, provisionals, substitutes, renewals, continuations, continuations-in-part, divisionals, foreign counterparts, reissues, oppositions, continued examinations, reexaminations, and extensions.” Thus, the license expressly included all patents that came forth from the ‘714 patent, e.g., “substitutes renewals, continuations, continuations-in-part, divisionals, foreign counterparts, reissues, oppositions, continued examinations, reexaminations, and extensions.” In other words, the license, on its face, included the ‘925 patent as the “parent” of the identified ‘714 patent. Additionally, the license expressly included the patents or applications from which the ‘714 patent came, e.g., “parents, provisionals.” However, the extension language did not expressly extend to continuations of the parent ‘925 patent. Thus, on its face, the license appeared to not include the ‘704 patent and the ‘836 patent and the licensor sought to enforce the ‘836 patent against the licensee.

Much to the dismay of the licensor, the Federal Circuit in Cheetah Omni LLC held that the license included an express license of the ’925 patent (i.e., as the “parent” of the ‘714 patent) and that this express license of the ‘925 patent included an implied license for its continuations such as the ‘836 patent. (The ‘704 patent was not at issue in this case, but the implied license likely would have otherwise extended to it, too).

The Federal Circuit in Cheetah Omni LLC appears to reiterate previous rulings (see, e.g., General Protecht Group Inc. v. Leviton Manufacturing Co., 651 F.3d 1355 (Fed. Cir. 2011)) that this implied license is based on the fact that “those continuations disclose the same inventions as the licensed patent.” As such, it appears likely that if the ‘836 patent had been a continuation-in-part of the ‘925 patent and claimed subject matter not disclosed in the ‘925 patent, then the ‘836 patent may not have been included in the implied license.

Does your license limit your cause of action?

A patent license is a contract by the licensor not to sue the licensee for patent infringement. When things go wrong, it can be easier and cheaper to pursue breach of contract claims compared to patent infringement claims. Furthermore, breach of contract claims do not put your patent at risk of being invalidated. Accordingly, it is important to ensure that your license will give you the option of suing under a breach of contract cause of action. However, as shown in some recent cases, it is easy to unintentionally limit your causes of action.

For example, some patent licenses include provisions regarding what the licensee is permitted to do with the licensed invention. For example, in Sauder Mfg. Co. v. J Squared Inc., 797 Fed.Appx. 528 (Fed. Cir. 2020), the license stated that the licensee “shall be permitted to modify and sell” the licensee’s remaining inventory of the allegedly infringing product and that the licensor “shall make no claim of infringement against [the licensee] based on the offer for sale and/or sale of said [product] as modified according to the description contained in Exhibit C herein.” In this case, the licensor intended to restrict the licensee to making only certain specific modifications to the patented product. The licensee ended up making other modifications to the infringing product in order to result in a non-infringing product. The licensor argued that the licensee’s chosen modification could be easily reversed by the consumer to result back to an infringing product. The licensor sued the licensee for breach of contract.

The Federal Circuit in Sauder Mfg. Co. held that the terms of the license only stated one type of modification that was permitted but did not expressly state that other modifications were prohibited. In other words, the licensee did not breach the contract by making different modifications, and the licensor was free to sue the licensee for patent infringement if the modified product infringed.

Similarly, In Macom Tech. Solutions v. Infineon Techs., 881 F.3d 1323 (Fed. Cir. 2018), the license in question sought to limit the field in which the licensee could use the patented subject matter. The license stated that the licensor “hereby grants to [the licensee] the following: a) a worldwide, royalty-free, fully paid exclusive license in the Field of Use only, with right to sublicense in the Field of Use only.” The licensee then made several sales outside the “Field of Use” and the licensor sued for breach of contract. To the licensor’s dismay, the Federal Circuit held that the licensee did not breach the license agreement by selling outside of the “Field of Use.” Instead, the Federal Circuit noted that “a patent license … is ‘in essence nothing more than a promise by the licensor not to sue the licensee’ … Aside from this promise not to sue, the quoted contractual language suggests no additional promise by (or obligation of) [the licensee] not to exceed the Field of Use.” In other words, the licensor could still bring a patent infringement suit but was unable to sue under breach of contract.

The topics above are merely the tip of the iceberg when it comes to navigating licenses terms and how they can be unexpectedly interpreted. Accordingly, it is important to consult an attorney with experience specific to licensing patents and who is knowledgeable about how courts will interpret license terms.