Will Your Settlement Agreement Prevent You from Later Asserting Your Patent Rights?

March 14, 2012

Eric Rutt

What This Means To You

  • Assert all relevant claims when initiating a lawsuit, to avoid possibly losing ability to assert the claims in a subsequent lawsuit. Amending claims in reexamination will not provide a second bite at the apple.
  • Precisely define the products covered by a settlement agreement to avoid later surprises as to what products were or were not covered.
  • Be wary of settlement agreements that cover “any cause of action that could have been brought” lest they cut off rights to later recover for infringing conduct that could have been included in the original lawsuit.

Overview

In Aspex v. Revolution, the US Court of Appeals for the Federal Circuit (Federal Circuit) considered the effect of a reexamination and an earlier lawsuit on later litigation. First, the court held that patent claims issued through reexamination do not give patentees a new cause of action; in other words no second bite at the apple.

Second, the court found that the parties’ earlier lawsuit which ended in a related settlement agreement, did not preclude a patentee from bringing a second lawsuit for infringing conduct that occurred after termination of the earlier lawsuit.

Case Background

Aspex Eyewear and Revolution Eyewear make magnetic clip-on sunglass lenses. Both parties own patents related to eyewear and have been suing each other for years. In a 2002 lawsuit, Revolution’s eyeglass frames were found to have infringed a claim of Aspex’s patent.

In 2006, Aspex sued Revolution’s licensee, Marchon Eyewear, for infringing the same patent. In 2007, Marchon began selling frames with a new design that differed from that of the accused frames. In 2008, Aspex and Marchon settled the lawsuit. The settlement agreement covered “any claim which would have been had by and between the parties.”

In 2008, the US Patent and Trademark Office (USPTO) reexamined Aspex’s patent. Though some claims were rejected, several claims were allowed with amendments. In 2009, Aspex asserted two of the amended claims in a new lawsuit against Revolution and Marchon. The district court granted summary judgment that Aspex’s earlier litigation against Revolution and Marchon precluded it from asserting the patent against the defendants. The court held that – despite the design change – the accused products were essentially the same as the products in the earlier lawsuits, that Aspex could have asserted the claims earlier, and that the amended claims issued through reexamination did not entitle Aspex to sue again.

Decision Analysis

The Federal Circuit affirmed the district court’s judgment that the reexamination did not entitle Aspex to another lawsuit against defendants. The legal principle of res judicata generally bars a plaintiff from asserting rights in a later action that it could have asserted in an earlier action but chose not to. The amendments Aspex made to the claims in reexamination were insubstantial. In addition, 35 U.S.C. § 305 requires that new claims issued through reexamination must not be broader than the original claims. The reexamination thus created no new rights for Aspex. Because Aspex could have asserted its patent rights in the earlier litigation but chose not to, the reexamination did not entitle Aspex to assert the same rights in a later lawsuit.

The Federal Circuit reversed in part the district court’s finding that Aspex’s earlier litigation with defendants precluded it from accusing certain products of infringement in the present action. Generally, res judicata only applies to claims that a plaintiff could have asserted at the initiation of an earlier suit. Though a patentee may choose to have a court adjudicate claims based on acts of infringement that occur after the initiation of suit, it need not do so. The Federal Circuit remanded the issue of whether Aspex had chosen to include in its earlier suit infringing acts that occurred between the initiation and termination of suit. Only if Aspex chose to include in the earlier suit claims that arose during the pendency of that suit would it be precluded from asserting those claims in the present suit.

The Federal Circuit also reversed the district court’s finding that Aspex’s settlement agreement with Marchon precluded Aspex from asserting claims against Marchon’s newly designed frames. The decision turned on a matter of contract interpretation. Though portions of the settlement agreement distinguished between Marchon’s new and old frame design, certain clauses lacked this distinction. In particular, the broad language of mutual release – i.e., “any claim which could have been had by and between the Parties” – did not specify whether the release applied to both Marchon’s new and old designs.

The court interpreted the release as not applying to the new design for two reasons: (1) the new design did not exist at the time the suit was initiated; and (2) other portions of the agreement were directed solely to the old design. Thus, the settlement agreement did not preclude Aspex from accusing Marchon’s new design frames in the present suit.

Takeaways

Though Aspex dodged a bullet regarding its settlement agreement, it need not have been in the line of fire. By more carefully specifying the products covered by the mutual release in its settlement agreement, Aspex may have avoided litigating the issue whether it could accuse Marchon’s redesigned product. This highlights the importance of precisely defining the products covered by a settlement agreement to avoid later surprises. It also illustrates the need for caution when including in a settlement agreement broad release language, e.g., “any cause of action that could have been brought.”

Separately, Aspex was not so lucky with its attempt to use reexamination to get a second bite at the apple. Patentees should not count on having a second chance to assert patent claims in a later lawsuit. Failure to include all relevant claims in a lawsuit could foreclose a patentee from later asserting those claims.