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Wed 7 Sep, 2016 11:00 am
Hello everyone,
I'm a law clerk at an IP firm and was tasked with a contracts question, which I'm not too familiar with. We filed some patents for Company A (whom we represent) who in turn licensed (pursuant to Licensing Agreement) to Company X to manufacture and sell the products of the design. Company X manufactured the product and allegedly infringed on Company Y's patent on a similar product. Company Y is suing Company X for infringement.
Here's where the issue comes up. Company X subsequently filed a declaratory judgment in response to Company Y's suit. However, in the Licensing Agreement, both sides agreed that, "Upon notice of action against Company X relating to the product, Company A in its sole discretion shall: (in relevant parts) determine whether to defend against any such action." The problem, as outlined above, Company X filed that declaratory judgment WITHOUT consulting Company A, thus violating that section of the Licensing Agreement. Also in the Agreement, Company X is not to take any action relating to the protection of any IP rights, that's left to Company A.
Further in the Licensing Agreement, there's an indemnification provision which establishes that Company A shall essentially pay the legal costs if Company X is successfully sued for patent infringement by a 3rd party.
In short, Company X decided to move forward with a law suit without Company A's consent, which violated a Licensing Agreement; if Company X loses the suit, Company A would be responsible for damages. I'm interested in what legal recourse we have as Company A. I'm particularly interested in Arizona/Ohio law regarding this. I'm such a novice at contracts, I'm basically flapping in the breeze here, so any help would be appreciated!
@gobrowns12,
gobrowns12 wrote:In short, Company X decided to move forward with a law suit without Company A's consent, which violated a Licensing Agreement; if Company X loses the suit, Company A would be responsible for damages. I'm interested in what legal recourse we have as Company A. I'm particularly interested in Arizona/Ohio law regarding this. I'm such a novice at contracts, I'm basically flapping in the breeze here, so any help would be appreciated!
I'm not sure I completely understand the clause in the licensing provision. If Company Y is suing Company X, that's their business - Company A would have nothing to say about that, except maybe to petition the court to join as a defendant in that suit.
And that's how I read the "sole discretion" clause - that it's in Company A's discretion whether to join in a suit of that kind. In contrast, I think your interpretation is that Company A can control whether or not Company X can file a dec action in response to Company Y's lawsuit. I'm not sure that's the correct reading, but then I don't have the contract in front of me, so I don't know. If your interpretation is correct, then Company X breached that provision of the contract. In that event, Company A can avail itself of whatever remedies it has for breach under the contract or in law.
@joefromchicago,
Thanks for the reply Joe. While you're reading does make sense, the way the contract is written up is the way I'm interpreting it. In that Company A has the right to decide if Company X may move forward with litigation. By filing a dec action, Company X unilaterally chose to pursue litigation without consulting Company A, which is required in the contract. The reason for this provision was because later in the contract there was an indemnification clause putting Company A on the hook for all damages resulting from infringement.
Also, thank you for pointing out that it is in fact a breach and Company A is entitled to breach remedies pursuant to the contract or in law. I think the partner was interested in finding pertinent case law to confirm that this was a breach.
As I said, I'm not great with contracts as I'm only a 2L and took Contracts during my first semester, so seriously thank you so much for your help. If you, or any one else for that matter, knows of any pertinent case law I would very much appreciate it!
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