DC grant of SJ affirmed since covenant not to sue and exclusive license directed to different subject matter and not covered by merger clause

Molon Motor and Coil Corp. v. Nidec Motor Corp.
Docket No. 2019-1071
January 10, 2020

Brief Summary: DC grant to SJ barring Molon since there was no merger of two agreements affirmed.

Summary: Molon appealed DC grant of summary judgment (SJ) that Molon is barred from enforcing US 6,465,915 against Nidec by a convenant not to sue with Nidec’s predecessor (Merkle-Korff Industries (“MK”)) (“the 2006 Covenant”). Molon argued the 2006 Covenant was extinguished by “the 2007 settlement” as it included a “merger” or “integration” clause that merged the two agreements and left the 2006 Covenant “of no further force or effect.” The 2006 Covenant was entered into between Molon and MK regarding the ‘915 patent “with respect to any and all products previously or presently made, used or sold” by MK and dismissed litigation including the ‘915 patent, while litigation regarding Molon’s “’785 patent” continued. In the 2007 Settlement, Molon and MK agreed to dismiss all litigation and MK obtained an exclusive license to the ‘915 and ‘785 patents (as well as the “’726 patent”) in “a narrowly defined exclusive market” (the “Kinetek Exclusive Market”). The 2007 Settlement also granted MK “the right to exclude others from using the patents within the Kinetek Exclusive Market”, and included the merger/integration clause. MK and Nidec later merged, and in this suit Molon alleged “that Nidec is practicing and/or inducing others to practice the ‘915 patent outside the licensed Kinetek Exclusive Market.” The FC panel reviewed the DC grant of SJ de novo under IL Seventh Circuit law and the contracts were interpreted under IL law (choice of law provision in agreements; “four corners” rule; Volt Info., US 1989). Molon argued the merger/integration clause applied because “the two agreements concern the same subject matter” (i.e., “the right to practice the ‘915 patent”) and that the language of the agreements “is itself evidence of the parties’ intent to extinguish the 2006 Covenant.” But the FC panel agreed with Nidec that even though both agreements relate to the same patent, the 2006 Covenant “is equivalent to a nonexclusive or ‘bare’ license” (Ortho Pharm., FC 1995) that “impliedly reserves the right to grant similar nonexclusive licenses to other entities” (Intell. Prop. Dev., FC 2001; “non-exclusive licensee…merely enjoys freedom from suit” (Rite-Hite, FC 1995)), while the 2007 Settlement is an exclusive license (i.e., a “promise” to exclude any other besides the licensee from practicing the licensed patent (Textile Prods., FC 1998; Rite-Hite, FC 1995 (“We have characterized an exclusive license as ‘shar[ing] the property rights represented by a patent.”)) Since an exclusive license and a non-exclusive license do not “necessarily concern the same subject matter, even though both licenses include the same patent”, the FC panel concluded the 2007 Settlement language “did not expressly extinguish the 2006 Covenant.” The FC panel also found no evidence of an intent to merge the agreements (e.g., under the “merger doctrine” which neither party invoked) since the agreements “contain[] different terms” and granted different rights (no conflict of rights, 2006 Covenant terms not rendered “superfluous”). The DC grant of SJ was therefore affirmed. Judge Reyna’s dissent argued that the subject matter is the same (“the right to practice the ‘915 patent”) and that “the majority applies an unduly heightened standard for merger” (e.g., “no legal requirement that a party explicitly list prior agreements in a merger clause”).

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