A Binding Settlement Agreement Generally Moots the Action Even if it Requires Future Performance

In Serta Simmons Bedding LLC v. Casper Sleep Inc., [2019-1098, 2019-1159] (February 13, 2020), the Federal Circuit vacated the district court’s summary judgment of non-infringement and remand with instructions to enforce the settlement agreement the parties made prior to the grant of summary judgment.

Casper filed three motions for summary judgment on the issue of non-infringement, and while these motions were pending, the parties executed a settlement agreement, and filed a Joint Notice of Settlement and Motion to Stay, informing the district court that they “entered into a Settlement Agreement” and requesting that all deadlines be stayed. Two days later the district court granted summary judgment for Serta. The district court denied Serta’s motions to enforce the settlement agreement, reasoning that the case was not moot when it issued the summary judgment order because the parties did not intend to immediately dismiss the claims, instead keeping the action alive until the parties fulfilled their obligations under the Settlement Agreement.

On appeal, Casper argued that the Settlement Agreement did not moot the case, because it still had future obligations to perform. The Federal Circuit disagreed, noting that in Exigent Technology, Inc. v. Atrana Solutions, Inc., 442 F.3d 1301 (Fed. Cir. 2006), it held that an enforceable settlement generally renders a case moot even though the parties have not yet performed the terms. The Federal Circuit also noted that other circuits have similarly held that a settlement involving all parties and all claims moots an action even if they contain executory terms. The Federal Circuit held that a binding settlement agreement generally moots the action even if the agreement requires future performance.

The Federal Circuit further found that under Federal Circuit law a district court has jurisdiction to enforce a settlement agreement that resolves patent infringement claims if the motion to enforce is filed before the case is dismissed and the proceedings are ongoing.

The Federal Circuit vacated the district court’s judgment, summary judgment order, and order denying the motion to enforce the Settlement Agreement, and remanded with instructions to enforce the Settlement Agreement. The Court also affirmed he district court’s denial of fees and costs pertaining to proceedings that incurred before the Settlement Agreement, because as a result of the settlement, Casper as not a prevailing party, and in any event the settlement agreement provided that each party bear its own fees..

Settlement Agreement Did Not Void Earlier Covenant Not to Sue

Molon Motor and Coil Corp. v. Nidec Motor Corp., [2019-1071](January 10, 2020), the Federal Circuit affirmed judgment in favor of Nidec Motor Molon’s claim for infringement of U.S. Patent 6,465,915, on the ground that Molon was barred from enforcing the ’915 patent against Nidec pursuant to a covenant not to sue that Molon granted in 2006.  Molon contended that the 2006 Covenant was extinguished by a clause in a Settlement, License and Release Agreement that the parties entered into in 2007, which stated that all prior covenants “concerning the subject matter hereof” are “merged” and “of no further force or effect.” The Federal Circuit agreed with the district court that the two agreements concern different subject matter and therefore do not merge.

Molon sued Nidec’s predecessor for infringement of one patent, and Nidec’s predecessor counterclaimed for a declaratory judgment invalidity/non-infringement of two others including the ‘915 patent.  To eliminate the counterclaim, Molon granted Nidec’s predecessor a covenant not to sue under the two additional patents.  Eventually Molon and Nidec’s predecessor settled the original ligation with a settlement agreement granted a limited license under all three patents.  This settlement agreement had an integration clause that provided:

The district court found that the 2006 Covenant gives Nidec a right to avoid suit for patent infringement on two patents, one of which is the ’915 patent, while the 2007 Settlement is in some ways broader—it is an exclusive license, it includes more than a dozen patents and applications, and it provides Nidec with some enforcement rights—and in other ways narrower—it is limited to a defined market of customers—than the 2006 Covenant.

All prior and contemporaneous conversations, negotiations, possible and al-leged agreements, representations and covenants concerning the subject matter hereof, are merged herein and shall be of no further force or effect.

The Federal Circuit agreed with Nidec and the district court that it is incorrect to broadly define the subject matter of both agreements as the right to practice the ’915 patent. Rather, to determine the subject matter of each agreement, the Federal Circuit said it must examine the actual language of the agreements themselves, and consider how the language of each agreement conveys the substantive rights and obligations exchanged between the parties.  The Federal Circuit observed:

The 2006 Covenant is a unilateral promise by Molon not to sue [Nidec’s predecessor] for infringement of two patents, one of which is the ’915 patent. The 2007 Settlement, in contrast, is a bilateral contract through which Molon transferred to [Nidec’s predecessor] a share in the existing and potential exclusionary rights under more than a dozen listed patents and applications, one of which is the ’915 patent. Moreover, the 2006 Covenant is limited to products existing at the time of its execution, while the 2007 Settlement includes both existing and future products. And the 2006 Covenant is not limited to any specific market, while the 2007 Settlement is limited. The court concluded, the 2006 Covenant remains in effect be-cause it does not concern the same subject matter as the 2007 Settlement.