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Just a reminder, these posts are not legal advice. This site is the personal blog of Mark Radcliffe and the opinions expressed are those of Mark Radcliffe and not those of his clients, DLA Piper or the clients of DLA Piper.

About Me:

Mark Radcliffe

I have been practicing law in Silicon Valley for over thirty years assisting startups and global companies develop and market innovative products and services. I have participated in multiple business cyles in Silicon Valley from hardware to software to internet to cloud. My projects have included developing the dual licensing business model for open source startup, developing the original domain dispute resolution policy for NSI and assisting Sun in open sourcing the Solaris operating system. Recently, I served on the US Japan Innovation and Entrepreneurship Council (one of ten members) to develop a plan to encourage the innovation in Japan and the United States. I have been working with the same attorneys since 1986 although we have merged with other law firms several times. I am now a partner at DLA Piper, a (relatively) new global law firm formed in 2005 from the merger of three law firms. The firm now has 4200 lawyers in 31 countries and 77 cities. My experience in corporate securities (particularly venture capital) and intellectual property enables me to assist companies structure the financing and intellectual property strategy for developing ane exploiting a new product or service. I and my team work with fifty startups at one time as well as Global Fortune 100. I have been fortunate enough to work with companies in software, cloud computing, semiconductor, health care IT and Web 2.0.

In a major change in the law, the Court of Appeals for the Federal Circuit (”CAFC”) held in Transcore v. ETC found that covenants not to sue have the same effect on patent exhaustion as a patent license (i.e. a sale permitted under the covenant not to sue would “exhaust” the patent) http://www.cafc.uscourts.gov/opinions/08-1430.pdf.  

Consequently, a first sale that falls within the scope of a patentee’s covenant not to sue is considered “authorized” and exhausts the patent with respect to downstream customers and users. This holding is dramatically different from the assumptions of most lawyers.  In fact, lawyers frequently use a convenant not to sue rather than a patent license to avoid patent exhaustion. 

This issue is very important for software licensors, both commercial and open source,  because they must now rethink their approach to patent licensing.  For example,  Red Hat used covenants not to sue in its Firestar settlement to cover certain parts of its ecosystem http://www.redhat.com/f/pdf/blog/patent_settlement_agreement.pdf. This decision means that lawyers need to review their existing agreements to see how this change will effect the rights of their clients. They also need to be much more careful about drafting patent agreements. 

Another troubling aspect of the Transcore decision is its finding the covenant not to sue applied to a patent not yet issued at the time of the settlement on the basis of the theory of “legal estoppel.”