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Augustine Medical, Inc. v. Progressive Dynamics, Inc., No. 98-1364, 194 F.3d 1367, 52 U.S.P.Q.2D (BNA) 1515 (Oct. 25, 1999).

SETTLEMENT AGREEMENT - GENERAL RELEASE - POST SETTLEMENT CLAIM - INDIVIDUAL CAUSES OF ACTION - IMPLIED LICENSE - UNFAIR COMPETITION - RIPE ISSUE

ISSUE & DISPOSITION

Issue(s)

1. Whether a settlement agreement between two parties, releasing any and all causes of action that a party "have, have had, or may have" against the other party based upon acts or omissions occurring on or before the date of the settlement agreement, bars the releasing party from asserting future claims against the other party related to goods in the agreement.

2. Whether a party may bring a claim for post-settlement patent infringement related to goods included in the agreement above on the grounds that each act of patent infringement gives rise to a separate cause of action.

3. Whether the law of implied license can be used offensively, to prevent dismissal of a claim.

Disposition

1. Yes. The phrase "may have" is prospective and implies a future possibility of having a claim; thus, future claims are barred because they were precluded by the language of the agreement.

2. No. Individual causes of action cannot override the unambiguous language of an agreement that releases all possible future claims related to matters settled within the agreement.

3. No. Offensive use of the implied license defense is not permitted.

SUMMARY

In 1993, Augustine Medical Inc., ("AMI") sued Progressive Dynamics Inc., ("PDI") for unfair competition. On April 24, 1995, AMI and PDI signed a Settlement Agreement and Release of Claims ("Agreement"). AMI released all claims, past and future, related to the convective warming blankets at issue in the agreement. On October 19, 1995, AMI filed a patent infringement suit against PDI. AMI limited its claims to PDI's actions occurring after the settlement agreement was signed. At issue were AMI's U.S. Patent 4,572,188, U.S. Patent 5,324,320, and U.S. Patent 5,405,371. The district court granted PDI's summary judgment motion for failure to state a claim and dismissed all of AMI's patent infringement claims. AMI appealed.

In a de novo review, the Court of Appeals held that AMI's patent infringement claims were sufficiently related to the pre-settlement actions to fall within the scope of the agreement. Further, the ordinary and natural meaning of the agreement was unambiguous.

AMI argued that it should be allowed to bring its claims because the post-settlement instances of patent infringement gave rise to individual causes of action. The Court held that these individual causes of action could not override the unambiguous language of the agreement. AMI was aware at the time of the settlement that PDI was producing and marketing the convective warming blankets at issue and would possibly continue to do so post-settlement AMI should have expressly reserved any possible claims which could have been known at the time of the agreement and which it wished to preserve.

AMI further argued that by dismissing its post-settlement infringement claims against PDI, the district court granted PDI an implied license for post-settlement infringing activities. The Federal Circuit indicated that the district court did not base its decision on an implied license but rather on the unambiguous language of the agreement.

Additionally, the Federal Circuit noted that it had previously held that implied license is a defense to an allegation of patent infringement and thus would not allow it to be used offensively. Thus, the Court affirmed the district court's grant of summary judgment to PDI.

Prepared by the liibulletin-patent Editorial Board.