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Recent Federal Circuit Case May Affect Patent License Drafting

April 30, 2009

By David M. Klein and Chi-Fei Wang

On April 8, 2009, the U.S. Court of Appeals for the Federal Circuit ruled in TransCore, L.P. v. Electronic Transaction Consultants Corp., 2008-1340 that an unconditional covenant not to sue has the same legal effect as an unconditional non-exclusive license for purposes of patent exhaustion. With respect to a patent that was issued after entering into such covenant not to sue but that was (i) broader than the patent covered by such covenant and (ii) necessary to practice under the covered patent, the court held that, by virtue of legal estoppel, the covenant not to sue also conveys an implied license to the later patent. The courts decision may influence patent license drafting practices.