Second Circuit Holds Patent No-Challenge Clause Unenforceable

On July 10, 2012, the United States Court of Appeals for the Second Circuit held that a broad patent no-challenge clause in a Covenant Not to Sue agreement resolving a pre-litigation enforcement licensing effort was unenforceable on public policy grounds. The case, Rates Technology Inc. v. Speakeasy, Inc., calls into question some of the techniques licensors have adopted following the Supreme Court's MedImmune decision to try to restrict licensees' ability to challenge licensed patents.

Rates Technology had contacted Speakeasy and suggested Speakeasy was infringing certain Rates Technology patents. For a one-time payment, Rates Technology offered to release Speakeasy from liability. The parties proceeded to execute a Covenant Not to Sue, which included a release of liability and covenant not to sue under the patents by Rates Technology and a broad representation and warranty by Speakeasy that it would not challenge, or assist others in challenging, any of the subject