Patent holders seeking to sidestep the marking statute through clever settlement structuring are unlikely to find safe harbour in covenants not to sue.
The central question is whether a patentee can avoid the marking statute’s requirements by framing settlement agreements as covenants rather than traditional licences.
The short answer, according to legal analysts, is probably not, though the question is closer than it first appears and patentees have every incentive to test it in court.
Section 287(a) of the marking statute conditions the recovery of pre-notice damages on marking by the patentee and by persons making, offering for sale, or selling patented articles “for or under” the patentee.
In the case of VDPP v. Volkswagen, the Federal Circuit made short work of rejecting VDPP’s argument that settlement licences are somehow different from ordinary licences for marking purposes.
Despite that ruling, an entity might attempt to structure settlement agreements as pure covenants, explicitly promising not to sue while disclaiming any licence or authorisation to the recipient.
A pure covenant not to sue, unlike a licence, does not affirmatively authorise the recipient to do anything, and instead merely removes the threat of litigation while the recipient acts under its own authority.
Under this theory, products sold by a covenantee would not be considered “patented articles” sold “for or under” the patentee, meaning the marking obligation would never formally attach.
The “for or under” language in Section 287 arguably implies an agency-like relationship, and proponents of the covenant theory argue that such a relationship is simply not created by a covenant not to sue.
However, the more likely outcome is that courts will treat covenants not to sue the same as licences for marking purposes, consistent with the Federal Circuit’s well-established position that the two are functionally indistinguishable.
Drafting around that position with an explicit disclaimer is also unlikely to succeed, as the settlement language in TransCore itself disclaimed any “express or implied licence” and the court held that language did not change the result.
The policy argument in favour of the covenant approach does not fare much better following the VDPP decision, since the panel held that excusing licensee marking would frustrate all three purposes of Section 287.
Nevertheless, the question has not been squarely decided in the marking context, and the gap between “likely” and “certain” leaves room for future litigation to test the boundaries.
Patent holders watching this space should be cautious about assuming that creative settlement drafting will reliably insulate them from marking obligations under existing Federal Circuit doctrine.