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Last week, the U.S Court of Appeals for the Federal Circuit issued an opinion in <a href="http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/19-1071.Opinion.1-10-2020.pdf" target="_blank" rel="noopener">Molon Motor and Coil Corp. v. Nidec Motor Corp., No. 2019-1071 </a>(Jan. 10, 2020), affirming the district court’s grant of summary judgment that Molon’s suit for patent infringement against Nidec is barred by a covenant not to sue previously provided by Molon.

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Molon sued Nidec for infringement of Molon’s U.S. Patent 6,465,915. Molon and Nidec’s predecessor had entered into a settlement agreement in 2007, which granted the predecessor a license to use the ‘915 patent, and other Molon patents, in a certain market. In the present suit, Molon asserted Nidec was operating outside the licensed market, and thereby was liable for infringement of the ’915 patent. Nidec moved for summary judgment, asserting a 2006 covenant not to sue for infringement of the ‘915 patent granted by Molon to Nidec’s predecessor prevented Molon from enforcing the ‘915 patent against Nidec in the present action. The district court agreed with Nidec, and granted summary judgment against Molon. Molon appealed.

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At the Federal Circuit, Molon relied on a merger clause in the 2007 settlement agreement, which stated “[a]ll prior and contemporaneous conversations, negotiations, possible and alleged agreements, representations and covenants concerning the subject matter hereof, are merged herein and shall be of no further force or effect.”&nbsp; Molon asserted the merger clause extinguished the 2006 covenant not to sue.&nbsp; The Federal Circuit disagreed.&nbsp; In assessing whether the 2006 covenant “concern[ed] the same subject matter” as the 2007 agreement, the Court, applying Illinois contract law, explained that the determination of the “subject matter” of the agreement, is made by examining the agreement language.&nbsp; Comparing and contrasting the 2006 and 2007 agreements, the Court identified “important substantive differences” between them. The Court noted that the merger doctrine in contract law traditionally refers to the rule that once an agreement is reduced to writing, all prior negotiations are merged into that writing and parol evidence is not admissible to interpret the agreement.&nbsp; The Court explained that the 2006 covenant was not part of the negotiations for the 2007 settlement agreement – it was its own separate agreement and therefore outside the scope of what a merger clause is intended to cover. Having concluded that the 2006 covenant was not extinguished by the merger clause of the 2007 agreement, the Court affirmed the district court’s grant of summary judgment against Molon.

CAFC Holds Merger Clause in Later Agreement Does Not Extinguish Earlier Covenant

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