Patent Law

Epistar v. ITC (and Philips Lumileds Lighting) (Fed. Cir. 2009) 07-1457.pdf

Merger: Lumileds owns a patent covering a light-emitting diode (LED) with an electrically conductive window layer that is both brighter and more efficient than other LEDs. The conductive layer helps spread the flow of electrical current avoid "current crowding."

At issue in this case is the impact of a corporate merger/buyout on a settlement agreement that included a promise to not challenge a patent's validity.

Lumileds and Epistar have signed at least two prior settlement agreements involving the patent at issue here. In those agreements, Epistar agreed to pay a licensing fee for certain products, but reserved its right to challenge the patent if Lumileds asserted the patent against other patents. A third company, UEC, agreed that neither it nor its successors would later challenge the validity of the Lumileds patents.

Subsequently, Epistar purchased UEC, and the patentee argued that UEC's agreement should also bind Epistar. On appeal, the Federal Circuit partially rejected that argument - holding that the UEC settlement continues to bind the parties, but only "as understood and intended by them, according to its ordinary terms." Thus, even though Epistar took on all the legal obligations of UEC, Epistar can still challenge the Lumileds patent if the case does not involve UEC related products.

UEC?s settlement agreement has preclusive effect upon Epistar only ?to the same extent as upon [UEC it]self.? Restatement (Second) of Judgments § 43 (1982). The preclusive effect of that agreement, if any, is limited to UEC?s pre?Epistar product lines. To paraphrase this court in International Nutrition v. Horphag Research, Epistar?s acquisition of UEC does not have the effect of limiting Epistar?s rights that are unrelated to the product lines it acquired from UEC. Accordingly, this court overturns the Commission?s final determination that Epistar is estopped from challenging validity of the ?718 patent when asserted against its own products, separate from the UEC?Lumileds settlement agreement.

Here, the court could have done well to cite the Supreme Court's decision of Lear v. Adkins and its statements favoring the ability to challenge patent validity based on on "the strong federal policy favoring the full and free use of ideas in the public domain.?