United States: A Covenant Not To Sue May Prevent Dismissal Of A Litigation If The Covenant Does Not Extend To Customers

Abstract

A California court exercised jurisdiction over a declaratory judgment action even though the defendant offered a covenant not to sue. The court considered the parties' extensive litigation history and the text of the unilateral covenant not to sue to hold that the covenant not to sue was insufficient to divest the court of jurisdiction.

Background of the Case

Defendant VoIP-Pal owns a portfolio of Internet Protocol-based communication patents. Starting in 2016, VoIP-Pal filed multiple lawsuits in several different waves against multiple companies, including AT&T, Verizon, T-Mobile, Apple, Amazon, Facebook, Google, and Twitter. Those lawsuits include a set of cases filed in 2016 in the District of Nevada (the "2016 cases"), a set of cases filed in 2018 in the District of Nevada (the "2018 cases"), a set of cases filed in 2020 in the Western District of Texas (the "2020 cases"), and a set of cases filed in 2021 in the Western District of Texas (the "2021 cases"). AT&T was or still is a defendant in the 2016, 2020, and 2021 cases.

In 2016 and 2018, those defendants successfully transferred their suits to the Northern District of California, where the Court held all asserted patents invalid as unpatentable subject matter under 35 U.S.C. § 101; holdings the Federal Circuit subsequently affirmed.

In the instant matter, VoIP-Pal again sued AT&T and several other companies for infringing U.S. Patent No. 10,218,606 (the "'606 patent") as part of the 2020 cases. The '606 patent shares a common specification, title, parent application, inventors, and owner as the patents asserted in the 2016 and 2018 cases. AT&T subsequently filed a declaratory judgment action against VoIP-Pal in the Northern District of California requesting that the court invalidate the '606 patent. VoIP-Pal moved to dismiss the California case, arguing that the AT&T's declaratory judgment claim be heard in Texas, where VoIP-Pal filed its complaint. The California court disagreed, holding that it would be more efficient for the California court to resolve the case because it had already ruled on the patentability of other VoIP-Pal patents in the 2016 and 2018 cases. The Federal Circuit denied VoIP-Pal's mandamus petition to make the California Court dismiss the case, agreeing that the California Court was already familiar with the patents that share the same specification.

Following the Federal Circuit's decision, VoIP-Pal filed a motion to dismiss the California case that included a covenant not to sue AT&T. According to VoIP-Pal, the covenant not to sue removes any controversy between the parties, therefore the California court lacked subject matter jurisdiction over the case. After AT&T objected to the covenant not to sue for failing to extend to past products and services, extend to AT&T customers, and binding future assignees of the '606 patent, VoIP-Pal replied with a revised covenant not to sue that read as follows:

One month after its reply with the revised covenant not to sue, VoIP-Pal filed the 2021 cases, including a suit against AT&T. The 2021 cases involved different patents but related to the same technology as the '606 patent and involved the same accused products as the 2016, 2018, and 2020 cases.  

The AT&T Decision

The Federal Circuit has held that a covenant not to sue may divest a court of jurisdiction by agreeing not to assert a patent against the alleged infringer for any of its past, present, or future acts. Courts, however, must consider all the circumstances and a covenant not to sue does not automatically strip the court of jurisdiction. Courts should consider whether the patentee had already brought infringement lawsuits against the alleged infringer or taken steps to do so. Courts should also consider what is included in the covenant not to sue.  

Here, the court pointed to the multiple lawsuits VoIP-Pal filed against AT&T involving related patents and the same accused products to show that VoIP-Pal has a willingness to enforce its patent rights. The court also cited statements from VoIP-Pal's CEO in 2020 that said the company would continue to assert their intellectual property rights. Additionally, VoIP-Pal had filed the 2021 case after it offered the covenant not to sue AT&T. Taken together, the court concluded that VoIP-Pal was not actually trying to stop litigation against AT&T, but rather trying to stop litigation against AT&T in California.

The court then considered the contents of the covenant not to sue. Even though VoIP-Pal revised its covenant not to sue to include past products and services in response to AT&T's objection, the covenant did not extend to AT&T customers and did not bind future assignees of the '606 patent. Therefore, the covenant failed to divest the court of jurisdiction because the parties remained adverse at least with respect to AT&T's customers.

VoIP-Pal's significant litigation history with AT&T and the remaining justiciable controversy regarding AT&T's customers were sufficient for the court to keep jurisdiction to hear AT&T's declaratory judgment action against VoIP-Pal and thereby denied VoIP-Pal's motion to dismiss. 

Strategy and Conclusion

 To successfully divest a court of jurisdiction, a covenant not to sue must extend far enough to remove any controversy between the parties and ideally should be offered before the parties develop significant litigation history.

Further Information

The AT&T decision can be found here.

Originally published LES Insights (November 17, 2021)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.