Covenant not to sue

A non-assertion clause is the stipulation by which the holder of one or more patents undertakes towards a third party not to bring an infringement action against it based on those patents, for defined products and territories. It produces an effect close to that of a licence, since the beneficiary can operate without fear, but it does not have its nature: it confers no positive right to exploit and is not transferred without express stipulation. The non-assertion clause is common in dispute settlement agreements, cross-licences and agreements between competitors.

The features of the non-assertion clause

First, the object: the clause identifies the patents concerned, by list or by reference to a portfolio, and sometimes future patents for a set period. Next, the scope: products, processes, territories, beneficiary entities, with the sensitive question of the beneficiary’s customers, suppliers and subcontractors, who are covered only if expressly named. Finally, the consideration: payment, reciprocal undertaking, waiver of an invalidity action, or simply an element of a global settlement. The clause may be limited in time or stipulated for the life of the patents.

Non-assertion clause and licence

The distinction has practical consequences. A licence is a contract that can be recorded in the register, enforceable against third parties and transferable under the conditions provided. A non-assertion clause is a personal undertaking that binds only the parties and their designated successors. In case of transfer of the patents, the beneficiary must ensure that the undertaking follows the titles, through a transfer clause and information of the transferee, failing which the new holder could sue. Under competition law, non-assertion agreements between competitors are examined like licences and may constitute cartels where they serve to share markets. The texts can be consulted on the website of the European Commission.

Key points

In practice, the non-assertion clause is one of the most used instruments to exit a multi-jurisdictional patent litigation. Its drafting must anticipate the transfer of the patents, the evolution of the products and the relationships with the beneficiary’s partners. The firm negotiates and drafts these clauses in settlement agreements, as presented on the pages contracts and patent litigation.