Property, intangible

a blog about ownership of intellectual property rights and its licensing

Licenses and the After-Acquired Affiliate

Licenses and releases for after-acquired affiliates can be tricky things to draft. Are after-acquired affiliates also licensed to the rights? Are they licensed on a forward-going basis only, or does the license or release cure earlier infringement? It all depends on how you write it.

On November 24, 2016, plaintiff Oyster Optics, LLC sued a number of companies for patent infringement, including defendant Infinera Corporation and non-party Coriant. On June 28, 2018, Oyster and Coriant settled, with a release for past infringement and a license going forward. On October 1, 2018, Infinera acquired Coriant. Infinera thereafter claimed that it was released and licensed to the patents by virtue of Oyster’s agreement with Coriant.

The release was as follows:

3.1. … Oyster, on behalf of itself and its Affiliates … does hereby forever release and discharge the Coriant Defendants, their Affiliates …, from any and all claims … asserted or assertable without regard to jurisdiction questions, in the Territory, whether known or unknown, arising from activities in the Territory up to the Effective Date, whether or not raised in the Litigation, based on the Licensed Patents … including without limitation any asserted or unasserted claims of infringement of any of the Licensed Patents … by or for or on behalf of any of the Coriant Defendants and their Affiliates, prior to the Effective Date ….

There was an atypical definition of “Affiliate.” “Affiliate” is commonly defined as a entity controlled by, in control of, or under common control with the contracting entity. Here though, it was defined only as the entity that was in control:

“Affiliate” means “any Person, now or in the future, which … (ii) has Control of a Party hereto.” “Person” includes “any … corporation, and “Control” means, inter alia, “that fifty percent (50%) or more of the controlled entity’s shares or ownership interest representing the right to make decisions for such entity are owned or controlled, directly or indirectly, by the controlling entity.”

However, Infinera had acquired Coriant, so it was an “Affiliate.”

The court found no ambiguity in the agreement that Infinera was released:

The text is clear: the Release applies to (1) Infinera because it is an “Affiliate;” and (2) the claims asserted by Oyster against Infinera because the claims (i) are based on “infringement of the [Patents-in-Suit];” (ii) are alleged to “aris[e] from activities in the [United States];” and (iii) are alleged to have occurred “up to [June 27, 2018].”

Oyster argued that Infinera was not released from liability because it became an Affiliate after the Effective Date of the Agreement, arguing that control had to exist at the time the Agreement was made. However “Affiliate” was defined as any “Person, now or in the future” that has control. Placing the definition in the release provision, the release read “Oyster provides a release to each of the Coriant Defendants and their Affiliates [i.e., any Person, now or in the future, which: … (ii) has Control of a Party hereto],” so included Infinera.

Oyster alternatively alleged that a representation and warranty clause was breached:

The Coriant Defendants represent and warrant that none of the Coriant Defendants nor their Affiliates sell or supply optical-telecommunications transceivers, or components for optical-telecommunications transceivers, to any of the other named defendants in the Consolidated Litigation, although the Parties to this Agreement agree that the remedy for any breach by the Coriant Defendants of this representation and warranty is limited to an exclusion from the scope of this Paragraph 3.1 of such other named defendants with respect to those sales or supply that give rise to such breach.

This provision wasn’t breached; the meaning was clearly a representation that Coriant hadn’t sold components to Infinera and it hadn’t; they each manufactured their own.

The language granting the license was similar and the result the same. The agreement also had a “no assignment” clause and Oyster claimed that “by transferring manufacture and/or sale of these products to Infinera, it has also transferred the associated rights and benefits under the license to Infinera,” but the court wasn’t buying the stretch:

The Court finds Oyster’s argument to be both logically challenged and inconsistent with the plain terms of the Agreement. Section 4.1 expressly grants a license “to each of the Coriant Defendants” and “their Affiliates” and that such a license is “nonassignable (except as provided herein).” Infinera’s license rights stem directly from its status as an “Affiliate.” Whether or not any purported assignment of the Agreement has occurred is simply irrelevant. Even if such an assignment did occur, Section 13.2 expressly states that the Agreement “shall be separately assignable by the Coriant Defendants: (i) to any of their Affiliates.” There is simply nothing in the text to suggest that the License is inapplicable to products made by companies that acquire Coriant.

Oyster may not have anticipated the prospect that one defendant would acquire a settling licensee, or didn’t do a good enough job ensuring that the definitions in the agreement worked as intended each place they were used. It can be tricky stuff.

Oyster Optics, LLC v. Infinera Corp., No. 2:18-cv-00206-JRG (E.D. Tex. June 25, 2019)
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