Court Says No to Licensee Estoppel
Recently, the U.S. District Court for the Northern District of Illinois briefly discussed "licensee estoppel" in a copyright infringement case. Here's how BNA summarized the case (and in the process tried to win the 2008 Longest. Sentence. Ever. Competition):
Doctrine of licensee estoppel does not bar defendant's challenge to plaintiff's ownership of copyright in computer software, even though provision in licensing agreement explicitly forbidding licensee from challenging validity of licensor's copyright is generally enforceable, since licensing agreement between parties to present suit did not contain no-contest clause, and broader application of licensee estoppel doctrine is disfavored in copyright cases.
Whew. Anyway, in case you're a little hazy on all that estoppel stuff, especially regarding patents, trademarks and copyright, here's a quick overview:
Under the common law doctrine of licensee estoppel, a licensee was forbidden to challenge the licensor's ownership of an intellectual property right, or the validity of that intellectual property right, during the license term. Under current U.S. law, licensee estoppel continues to be applied in all circumstances only in the context of trademark and trade secret licenses. The doctrine of licensee estoppel has been made explicitly inapplicable to patent licensees. When a copyright license is litigated, courts have, in some circumstances, applied the doctrine, while courts in other circumstances have not.
That's from Intellectual Property Licensing: Forms and Analysis by Richard Raysman, Edward A. Pisacreta, and Kenneth A. Adler, which you can buy here.
So far, so theoretical. What does one of these "you can't challenge the validity of my IP rights" clauses look like? Here's one I came across recently:
Licensee will not during the term of this Agreement, or at any time thereafter, contest the validity of, jeopardize by affirmative act or knowing inaction, or take any action inconsistent with, Licensor's rights or goodwill in the Software in any country or jurisdiction.
The case, by the way, is FM Industries Inc. v. Citicorp Credit Services Inc., and you can find the court's decision here. The bottom line: FM forgot a clause like the one above and left themselves open to a claim of invalidity. Ouch.
