settlement agreement

Second Circuit Holds No-Challenge-To-Patents Clauses Unenforceable

In July 2012, the Second Circuit ruled in Rates Technology Inc. v. Speakeasy, Inc., 685 F.3d 163 (2012) that a provision in a pre-litigation settlement agreement precluding a party from challenging the validity of a patent was unenforceable as against the public policy announced in Lear, Inc. v. Adkins, 395 U.S. 653 (1969). 

The opinion calls into question a number of standard clauses which patent owners have used to control validity challenges by licensees and settling parties. 

When combined with the Supreme Court’s decision in MedImmune, Inc. v. Genentech Inc., 549 U.S. 118 (2007) (holding that licensees need not repudiate their license before challenging patent validity), licensees are now in a prime position to challenge patent validity.  Patent owners are advised to factor in an increased risk of challenges to patent validity in their settlement positions.