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Read the Fine Print: Covenant Not to Sue “At Any Time” Terminated Upon License Expiration

Illustrating the importance of carefully drafting and reviewing language in a covenant not to sue, the US Court of Appeals for the Federal Circuit found that the plain language of a covenant permitted a licensor to sue a licensee for breach of contract only after termination of the contract. AlexSam, Inc. v. MasterCard Int’l., Inc., Case No. 22-2046 (Fed. Cir. Feb. 28, 2024) (Lourie, Chen, Stoll, JJ.) (non-precedential).

In 2005, AlexSam and MasterCard entered into a patent licensing agreement that guaranteed AlexSam ongoing royalties under two of its patents that involved pre-paid cards used with point-of-sale devices. The agreement included a covenant not to sue, in which AlexSam agreed to “not at any time initiate, assert, or bring any claim . . . against MasterCard . . . relating to Licensed Transactions arising or occurring before or during the term of this Agreement.” The agreement also included a Term and Termination provision, which recited that the agreement would remain in full force for the life of the licensed patents unless a party breached, at which time, if the party failed to cure, the non-breaching party would have the right to terminate the agreement. The patents expired on July 10, 2017.

In May 2015, two years before the licensed patents expired, AlexSam sued MasterCard for breach of contract in the district court, claiming that MasterCard had not properly paid the royalties per transaction under the agreement. Separately, in March 2017, MasterCard filed a petition for Covered Business Method (CBM) Review, asking the Patent Trial & Appeal Board to review the patentability of the licensed patents. AlexSam argued that MasterCard lacked standing under 37 C.F.R. § 42.302(a), which required that MasterCard first be sued or charged with infringement of the patent on which it sought review. The Board determined that MasterCard lacked standing to bring the review. The Board also noted that it “need not, and do[es] not, address the question of whether [AlexSam’s] breach of contract claim in the New York Action itself violates the covenant not to sue.”

MasterCard moved for and was granted summary judgment in the district court on the grounds that AlexSam’s arguments before the Board regarding the covenant not to sue judicially estopped it from asserting its breach of contract claims. AlexSam filed its first appeal, and the Federal Circuit reversed the district court’s ruling, finding that it had abused its discretion in crediting AlexSam with a position it never actually took before the Board. The Court remanded the case for the district court to determine whether the covenant not to sue prohibited a claim for royalties. MasterCard again moved for summary judgment. The district court granted the motion, finding that the covenant not to sue barred AlexSam’s claim for unpaid royalties. AlexSam again appealed.

In this second appeal, AlexSam argued that the covenant not to sue in the 2005 License Agreement did not bar suit for breach of nonpayment of royalties since AlexSam would then have no remedy against a failure by MasterCard to pay [...]

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It’s Not Esoteric: Absent Ambiguity, Plain Contractual Language Governs

Rudimentary principles of contract law stipulate that words in a contract that are plain and free from ambiguity must be understood in their usual and ordinary sense. Applying such principles, the US Court of Appeals for the First Circuit vacated a district court’s damages award of more than $1 million under a patent license agreement, finding that the release clause in a settlement agreement wiped out the licensee’s obligation to pay royalties and sublicense fees for use and sale that occurred before the effective date of release. The General Hospital Corporation; Dana-Farber Cancer Institute, Inc. v. Esoterix Genetic Laboratories, LLC, Laboratory Corporation of America Holdings, Case Nos. 20-2126; -2149 (1st Cir. Oct. 21, 2021) (Selya, J.)


The plaintiff hospitals own several diagnostic patents, and Laboratory Corporation of America Holdings (LabCorp) and its subsidiary, Esoterix Genetic Laboratories, are licensee to the patents. Under the master license agreement, the licensee is obligated to pay fees to the hospitals, including royalties and sublicensee incomes.

In 2014, Esoterix settled a lawsuit against QIAGEN in association with a sublicense agreement concerning the diagnostic patents. LabCorp and Esoterix agreed to pay a portion of the settlement amount paid by QIAGEN to the hospitals. The settlement agreement included a broad release clause under which the hospitals released Esoterix from “any and all” obligations, “known or unknown,” that may have arisen out of the patent rights or the license before the effective date (June 27, 2017), including “payment of any past royalties or other fees pursuant to the [license].”

A semi-annual reporting period under the license agreement was due on June 30, 2017. Esoterix took the position that all royalties and sublicense income prior to June 27, 2017, were released, and thus only reported revenue and royalty information for the period of June 28 ­– 30, 2017. The hospitals sued to recover sublicense fees from QIAGEN to Esoterix. The district court found that Esoterix had not been released from its payment obligation for use and sales occurring before June 27, 2017, on the ground that Esoterix’s payment obligation had not originated until the payment deadline, which fell after the effective date of release. Esoterix appealed.


The First Circuit disagreed with the district court and concluded that the terms of the release agreement and the license agreement did not indicate that Esoterix’s obligation arose when the payments became due and payable (i.e., after the effective date of the release).

Following the Massachusetts law in accordance with the choice-of-law provision in the agreements, the First Circuit applied the principle that the plain meaning of the agreements governs, absent ambiguous provisions. The Court decided that the release agreement released Esoterix’s obligations in connection with the underling license agreement that may have arisen before the effective date. Taking into consideration the royalty and sublicensing fee provisions of the license agreement, the Court further decided that Esoterix’s financial obligation under the license agreement, including royalties and sublicense income, arose upon its sales and receipt of sublicensing income, which originated [...]

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