The U.S. Court of Appeals for the Federal Circuit held that the release language in the context of settlement agreements and consent decrees must be clear and unambiguous to release patent invalidity claims. Baseload Energy, Inc., v. Bryan W. Roberts, Case No. 10-1053 (Fed. Cir., Sept. 9, 2010) (Dyk, J.).
In June of 2006, Baseload expressed interest in a joint venture agreement between Baseload and Roberts. The parties allegedly entered into an oral contract, by which Roberts agreed to assign a patent to a new venture, Sky Windpower Corp. (Sky Power), which was to be formed for this particular venture. Toward this end, a written agreement was prepared; however, it was never signed and eventually the relationship between the parties deteriorated. In May 2007, Baseload initiated an action in a district court against Roberts, seeking $1 million in compensatory damages for breach of contract as well as compelling Roberts to perform the terms of the oral contract. In March 2008, the parties entered into a settlement agreement that included provisions releasing the claims that the parties could have brought against each other. Furthermore, the settlement agreement gave Baseload an option to acquire a non-exclusive license under the patent at a price of $1.75 million.
In September 2008, the granted option to Baseload lapsed when Baseload was unable to raise the $1.75 million. In October 2008, Baseload filed this action against Roberts, seeking declaratory judgment that the patent is invalid and unenforceable. Robert moved for summary judgment asserting that Baseload’s claims were barred by the release provision of the 2008 settlement agreement. The district court agreed, concluding that "unambiguous and expansive language of the Settlement Agreement barred all claims deriving from event occurring before March 18, 2008." Therefore, the district court issued a summary judgment in favor of Roberts.
Baseload appealed, asserting that the district court erred in granting summary judgment because the release provision in the settlement agreement does not clearly and unambiguously release patent invalidity claims. The Court agreed, holding that "[i]n the context of settlement agreements, as with consent decrees, clear and unambiguous language barring the right to challenge patent validity in future infringement actions is sufficient, even if invalidity had not been previously at issue and had not been actually litigated." The Court noted that in this case there is no such a clear language and there was no release of either patent infringement claims or invalidity defenses. To the contrary, the Court noted that there is a real question whether the general language of the agreement was intended to cover such disputes because "there was no issue in the breach of contract litigation concerning patent infringement or patent invalidity and unenforceability." Furthermore, the Court noted that, in light of the optional license agreement, the parties could not have intended to exclude infringement from the scope of the settlement agreement. Based on this finding, and because the language of the agreement could not be read to distinguish between the infringement and invalidity claims, the Court concluded that it necessarily follows that the defenses to infringement including invalidity defenses were also preserved.