Discusses the January 2013 Supreme Court decision bearing on the issue of when a covenant not to sue can nullify a claim for a declaratory judgment of invalidity. This was a TM case, but its principles are expected to apply to patent cases, as well.

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Covenants Not to Sue in the
Wake of Already, LLC v. Nike
© 2013 Womble Carlyle Sandridge & Rice, LLP
by: Michael A. Ciceroby: Michael A. Cicero
Atlanta OfficeAtlanta Office
Patent Legal Issues MeetingPatent Legal Issues Meeting
March 12, 2013March 12, 2013

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Womble Carlyle presentations are intended to
provide general information about significant
legal developments and should not be
construed as legal advice regarding any
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services.
DISCLAIMER

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Tech. Licensing Corp. v. Technicolor USA, Inc.,
800 F.Supp.2d 1116 (E.D. Cal. 2011)
Already, LLC v. Nike,
___ U.S. ___, 133 S.Ct. 721 (Jan. 9, 2013)
Hitachi Koki Co., Ltd. v. Techtronic Indus.
Co., Ltd.,
No. 1:09:3308-WSD (N.D. Ga. Feb. 6, 2013)
Decisions Covered Here:Decisions Covered Here:

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General Legal Principles on
Covenants Not to Sue

5. 55
General PrinciplesGeneral Principles
• DJ Plaintiff’s Burden: “Subject matter jurisdiction in a
declaratory judgment suit depends upon the existence of ‘a
substantial controversy, between the parties having adverse legal
interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment,’ and the plaintiff bears the
burden of proving the existence of such a controversy
throughout the litigation.” Dow Jones & Co. v. Ablaise Ltd.,
606 F.3d 1338, 1345 (Fed. Cir. 2010) (emphasis added) (quoting
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)).

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General PrinciplesGeneral Principles
• Covenant Content is Key: “[W]hether a covenant not to sue
will divest the trial court of jurisdiction depends on what is
covered by the covenant.” Revolution Eyewear, Inc. v. Aspex
Eyewear, Inc., 556 F.3d 1294, 1297 (Fed. Cir. 2009).
• Jurisdiction Divested: “[A] covenant not to sue for patent
infringement divests the trial court of subject matter jurisdiction
over claims that the patent is invalid, because the covenant
eliminates any case or controversy between the parties.” Dow
Jones, 606 F.3d at 1346.

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General PrinciplesGeneral Principles
• Covenant Applies to Continuations Unless Covenant
Specifies Otherwise. Gen. Protect Group, Inc. v. Leviton Mfg.
Co., 651 F.3d 1335, 1361 (Fed. Cir. 2011).
• Once Given, Covenant Might be Irrevocable. See ICOS
Vision Sys. Corp., N.V. v. Scanner Techs. Corp., No. 10 Civ.
0604, 2012 U.S. Dist. LEXIS 19886, at *17 (S.D.N.Y. Feb. 15,
2012) (Merely because covenant was not supported by
consideration did not make it revocable; promissory estoppel can
serve as substitute for consideration, which defendant proved;
patentee thus legally estopped from revoking covenant.).

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Example of Pre-Already
Assignment of Burdens:
Tech. Licensing Corp. v. Technicolor
USA, Inc., 800 F.Supp.2d 1116
(E.D. Cal. 2011)

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Facts:
• Technology Licensing Corporation (“TLC”) sues Technicolor
for infringement of 2 patents. Technicolor counterclaims for
DJs of noninfringement and invalidity.
Tech. LicensingTech. Licensing (E.D. Cal. 2011)(E.D. Cal. 2011)
• Technicolor serves an FRCP 68 Offer of Judgment. TLC files
Notice of Acceptance of that Offer as to “claims by [TLC]
against [Technicolor].”
• Clerk enters judgment on TLC’s claims. Case then
administratively closed. Technicolor moves to reopen,
asserting its invalidity CC was not encompassed in Offer of
Judgment.

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Facts (cont’d):
• In response to the Motion to Reopen, TLC offers following
covenant not to sue: “TLC unconditionally agrees not to sue
[Technicolor] for infringement as to any claim of the patents-
in-suit based upon the products currently manufactured and
sold by [Technicolor].”
Tech. LicensingTech. Licensing (E.D. Cal. 2011)(E.D. Cal. 2011)
• TLC then moves to dismiss on basis under FRCP 12(b)(1) on
basis of covenant.

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Technicolor’s arguments:
• Covenant is insufficient because it does not apply to: “(1) its
activities, specifically inducement of infringement, and (2)
future products . . . .”
• Re (2), covenant’s use of “currently manufactured” is
ambiguous and could be interpreted to exclude future
products.
Tech. LicensingTech. Licensing (E.D. Cal. 2011)(E.D. Cal. 2011)

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Court’s rejection of Technicolor’s arguments:
• Re (1), TLC acknowledged on reply that its covenant was
broad enough to encompass activities relating to the covered
products. On that basis, court finds no case or controversy
as to any of Technicolor’s related activities.
Tech. LicensingTech. Licensing (E.D. Cal. 2011)(E.D. Cal. 2011)
• Re (2): “To demonstrate a case or controversy, Technicolor
would thus need to provide the court with information
regarding its intention to produce new products in the future
that might infringe on TLC’s patents. It has not done so.
Accordingly, there is no ‘substantial controversy [ ]’ . . . and
the court will grant TLC’s motion to dismiss . . . .”

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Already, LLC v. Nike,
___ U.S. ___, 133 S.Ct. 721
(Jan. 9, 2013)

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Procedural History
• Already makes line of shoes known as “Sugars” and “Soulja
Boys.” Nike files suit, alleging that both lines infringe and
dilute its “Air Force I” TM.
• Already counterclaims for DJ of trademark invalidity.
• 8 months into lawsuit, Nike issues covenant not to sue, then
moves to dismiss Already’s CC. District court grants motion,
and 2d Circuit affirms. Supreme Court grants certiorari.
Already, LLC v. NikeAlready, LLC v. Nike

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Excerpts from Nike’s Covenant:
(133 S.Ct. at 728):
“‘[Nike] unconditionally and irrevocably covenants to refrain
from making any claim(s) or demand(s) . . . against Already or
any of its . . . related business entities . . . [including]
distributors . . . and employees of such entities and all
customers . . . on account of any possible cause of action
based on or involving trademark infringement, unfair
competition, or dilution, under state or federal law . . . relating
to the NIKE Mark based on the appearance of any of
Already’s current and/or previous footwear product designs,
and any colorable imitations thereof, regardless of whether
that footwear is produced . . . or otherwise used in commerce
before or after the Effective Date of this Covenant.’”
Already, LLC v. NikeAlready, LLC v. Nike

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• Voluntary Cessation Doctrine:
• “[I]t was Nike’s burden to show that it ‘could not reasonably
be expected’ to resume its enforcement efforts against
Already. Burden characterized as “formidable.” Id. at 727
(citation omitted).
• “[O]nce it is ‘absolutely clear’ that challenged conduct
cannot ‘reasonably be expected to recur,’ the fact that some
individuals may base decisions on ‘conjectural or
hypothetical’ speculation does not give rise to the sort of
‘concrete’ and ‘actual’ injury necessary to establish Article
III standing.” Id. at 730 (emphasis added; citations omitted).
Already, LLC v. NikeAlready, LLC v. Nike: Supreme Court’s Analysis: Supreme Court’s Analysis

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• “We agree with the Court of Appeals that ‘it is hard to imagine
a scenario that would potentially infringe [Nike’s trademark]
and yet not fall under the Covenant.’” Id. at 728.
• “Given the covenant’s broad language, and given that Already
has asserted no concrete plans to engage in conduct not
covered by the covenant, we can conclude the case is moot
because the challenged conduct cannot reasonably be expected
to recur.” Id. at 729.
Already, LLC v. NikeAlready, LLC v. Nike: Supreme Court’s Analysis: Supreme Court’s Analysis

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• “Under the voluntary cessation doctrine, Nike bears the
‘formidable burden of showing that it is absolutely clear the
allegedly wrongful behavior could not reasonably be expected
to recur.’” Id. at 733 (emphasis added; citation omitted).
• “This brief, separate concurrence is written to underscore that
covenants like the one Nike filed here ought not to be taken as
an automatic means for the party who first charged a
competitor with trademark infringement suddenly to abandon
the suit without incurring the risk of an ensuing adverse
adjudication.” Id.
Already, LLC v. NikeAlready, LLC v. Nike: Justice Kennedy’s: Justice Kennedy’s
Concurring OpinionConcurring Opinion

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• “The formidable burden to show the case is moot ought to
require the trademark holder, at the outset, to make a
substantial showing that the business of the competitor and its
supply network will not be disrupted or weakened by satellite
litigation over mootness or by any threat latent in the terms of
the covenant itself.” Id. at 734.
Already, LLC v. NikeAlready, LLC v. Nike: Justice Kennedy’s: Justice Kennedy’s
Concurring OpinionConcurring Opinion
• “It would be most unfair to allow the party who commences
the suit to use its delivery of a covenant not to sue as an
opportunity to force a competitor to expose its future business
plans or to otherwise disadvantage the competitor and its
business network, all in aid of deeming moot a suit the
trademark holder itself chose to initiate.” Id.

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“Courts should proceed with caution before ruling that they
can be used to terminate litigation. An insistence on the proper
allocation of the formidable burden on the party asserting
mootness is one way to ensure that covenants are not automatic
mechanisms for trademark holders to use courts to intimidate
competitors without, at the same time, assuming the risk that
their trademark will be found invalid and unenforceable.” Id.
at 734 (emphasis added).
Already, LLC v. NikeAlready, LLC v. Nike: Justice Kennedy’s: Justice Kennedy’s
Concurring OpinionConcurring Opinion

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Hitachi Koki Co., Ltd. v. Techtronic
Indus. Co., Ltd.,
No. 1:09:3308-WSD
(N.D. Ga. Feb. 6, 2013)

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Procedural History
• Nov. 2009: Hitachi sues defendants for infringement of 4
patents related to tools. Count I of complaint alleges
infringement of U.S. Pat. No. 7,521,892 (“ the ’892 patent”).
Defendants (“Ds”) assert counterclaims, including a DJ of
invalidity of the ’892 Patent.
Hitachi KokiHitachi Koki
• March 2012: Hitachi moves for dismissal of Count I under
FRCP 41(a)(2) and 12(b)(1). Brief in support of motion
recites covenant not to sue, apparently not issued previously.
• May 2012: Ds file MSJ of invalidity of ’892 Patent.

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“[Hitachi] covenants not to sue [Ds] for infringement of [the ’892
patent] based on [Ds’] manufacture, importation, use, sale, and/or
offer for sale, of products on or before March 13, 2012. [Hitachi]
covenants not to sue [Ds] for infringement of the ‘892 patent based
on [Ds’] future manufacture, importation, use, sale, and/or offer
for sale, of any and all products being offered for sale by [Ds] on
March 13, 2012 as well as any products that are the same as or
substantially identical to a product being offered for sale by [Ds]
on March 13, 2012. [Hitachi] covenants not to sue or otherwise
seek to hold [Ds’] customers liable based upon the importation,
distribution, use sale and offering for sale of the products that are
subject to this covenant not [to] sue for the infringement of the
‘892 patent.” Hitachi Koki, slip op. at 10 (emphasis added).
Hitachi’s Covenant Not to SueHitachi’s Covenant Not to Sue

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• FRCP 41(a)(2) Not Proper Rule for Voluntarily Dismissing
Less than All of Case: “Courts uniformly have held that Rule
41(a) does not permit the dismissal of individual claims from a
multi-claim action but only authorizes the dismissal of an entire
action.” Hitachi Koki, slip op. at 7 (emphasis added). “[T]he
proper way for a plaintiff to remove a single claim is to move to
amend the complaint under Rule 15.” Id. at 8 & n.2.
Hitachi KokiHitachi Koki: ND Ga’s Analysis: ND Ga’s Analysis
• Covenant Formalities Still Important: “If the covenant was
not formally executed and delivered to Defendants, the Court
finds that a covenant was not issued in this case and thus there
exists a case or controversy regarding validity of the ’892
patent. On this ground alone, [Hitachi]’s motion to dismiss
would be required to be denied.” Id. at 10 n.3.

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• “[T]he covenant does not apply to specific potentially-infringing
products that Defendants have introduced or will introduce after
March 12, 2012.” Id.
Hitachi KokiHitachi Koki: ND Ga’s Analysis: ND Ga’s Analysis
• “[The covenant] does not cover any product manufactured,
imported, used, sold, or offered for sale using the ‘892 patent
technology that is not substantially similar to Defendants’
products as they existed on March 13, 2012.” Id. at 12.
• An employee of one of the Ds testified that they have “concrete
plans” to launch products in 2012 that use the ’892 patent
technology but yet that are not “‘the same as or substantially
identical to’ products existing as of March 13, 2012.” Id. at 11.

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Hitachi KokiHitachi Koki: ND Ga’s Analysis: ND Ga’s Analysis
• Ds’ MSJ of Obviousness Denied for failure to present evidence
regarding the level of ordinary skill in the art. Id. at 16-17.
• RESULT: Court denies Hitachi’s motion. Issue of validity of
the ’892 patent remains a “live” one such that court can consider
Ds’ MSJ of invalidity (obviousness) of that patent. Id. at 13.
Court left open the possibility that Hitachi could frame a more
comprehensive covenant to “remove the threat of litigation
against Defendants for infringement of the ’892 patent,” but that
the covenant Hitachi presented in its motion was not such a
covenant. Id. at 12 n.4.

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Take-Away Points
1. The content of any covenant not to sue will be closely scrutinized
in future cases. Learn from Hitachi’s mistakes to draft broad,
effective covenant for patent cases that will comply with Already
v. Nike, and follow Nike’s example for TM cases.
2. Formalities are still important. Ensure that a covenant is signed
and delivered to opponent prior to any dismissal motion.
3. Counsel client about risk of irrevocability of covenant, once
made, and about its application to continuations in patent cases.
4. Get it right the first time. Hitachi could have had its ’892 patent
invalidated but dodged a bullet on summary judgment.

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THE ENDTHE END