BYD. PATRICK O’REILLEY

FINNEGAN

PRESENTED ATLICENSING & MANAGEMENT OF IP ASSETS

AIPLA ANNUAL MEETINGOCTOBER 26 , 2012

Lear and its Progeny

Lear, Inc. v. Adkins395 U.S. 653 (1969)

Adkins licensed Lear under patent application Lear to pay royalties Lear could terminate if no patent issued or

if patent was held invalidBelieving no patent would issue, Lear

stopped paying royaltiesPatent issuedAdkins sued under contract for

royalties

California State Court Decisions

State courts refused to allow Lear to assert patent invalidity under licensee estoppel rule “so long as a licensee is operating under a license

agreement he is estopped to deny the validity of his licensor’s patent in a suit for royalties under the agreement.”

Supreme Court granted certiorari in view of “recent decisions emphasizing the strong federal

policy favoring free competition in ideas which do not merit patent protection” Sears and Compco decisions

Supreme Court Decision

Supreme Court held public interest in free competition in use of ideas in public domain prevails over licensee estoppel “Licensees may often be the only individuals

with enough economic incentive to challenge the patentability of an inventor’s discovery. If they are muzzled, the public may continually be required to pay tribute to would-be monopolists without need or justification.”

Supreme Court Decision

Supreme Court also rejected arguments That royalties were payable as

consideration for disclosure and license of invention before patent issuance But consider later decision in Aronson v. Quick

Point That royalties should be paid under

contract until patent finally declared invalid “enforcing this contractual provision would

undermine the strong federal policy favoring the full and free use of ideas in the public domain”

Lear Principles

Licensees may be only ones with incentive to challenge “patentability of an inventor’s discovery”

Contract law principle – licensee estoppel – “must give way before the demands of the public interest”

Contract provisions, such as royalty payments, that, if enforced, would frustrate overriding federal policy are unenforceable

Progeny of Lear v. Adkins7

Effect of express no-challenge clauseNot enforceable

Massillon-Cleveland-Akron Sign v. Golden State Advertising, 444 F.2d 425 (9th Cir. 1971)

Not patent misuse Panther Pumps & Equip. Co. v. Hydrocraft,

Inc., 468 F.2d 225 (7th Cir. 1972)

Lear Does Not Apply8

To Assignments Possible exception based on post-assignment events Shamrock Tech. v. Medical Sterilization, 903 F.2d 789

(Fed. Cir. 1990) (assignor estoppel); Earth Resources v. United States, 44 Fed. Cl. 274 (1999) (assignor-licensee is assignor for estoppel)

Roberts v. Sears & Roebuck Co., 573 F.2d 976 (7th Cir. 1978) (assignee estoppel)

To consent judgments disposing of litigation Consent as to validity and infringement Public interest in res judicata more compelling than

free competition in public domain Foster v. Hallco, 947 F.2d 469 (Fed. Cir. 1991)

Lear Does Not Apply

To agreements in settlement of litigation Public interest in settlement of litigation

and res judicata greater than public policy of Lear

“No challenge” provision enforceable Flex-Foot Inc. v. CRP Inc., 238 F.3d 1362

(Fed. Cir. 2001); Interspiro USA Inc. v. Figgie Int'l, 18 F.3d 927 (Fed. Cir. 1994); Hemstreet v. Spiegal, 851 F.2d 348 (Fed. Cir. 1988)

Lear Applies10

To exclusive and nonexclusive licensesBeckman Instruments v. Technical Dev.

Corp., 433 F.2d 55 (7th Cir. 1970)To agreements in settlement of disputes in advance of litigationRates Tech., Inc. v. Speakeasy, Inc., 685

F.3d 163 (2d Cir. 2012); Massillon–Cleveland–Akron Sign Co. v. Golden State Adver. Co., 444 F.2d 425 (9th Cir. 1971)