Details

Sometimes a little, overlooked detail can bite you where you sit. (Gordon-Darby Systems, Inc. v. Applus Technologies, Inc.)

Gordon-Darby sued Applus for infringement of a patent directed to a method and system for self-service automobile emissions testing stations. Applus, in response, sought a declaratory judgment that the patent-in-suit was invalid, unenforceable and not infringed. The claim of unenforceability was based upon alleged inequitable conduct by Gordon-Darby. In addition to the declaratory relief, Applus sought a judgment that the case was “exceptional” and an award of its “reasonable fees and costs” in the action.

After some discovery, Gordon-Darby realized that the lawsuit was ill-advised. It negotiated a settlement with Applus, whereunder it withdrew the complaint, with prejudice, and gave Applus a covenant not to sue. In exchange, Applus dismissed its counterclaim for declarations of invalidity and non-infringement.

Here is where it gets interesting. As noted above, Applus had sought an award of its attorney’s fees, based upon alleged inequitable conduct by Gordon-Darby. Despite the “settlement,” it continued to press this claim. Gordon-Darby argued that the dismissal and its grant of the covenant not to sue, which eliminated any threat of suit against Applus, had divested the court of jurisdiction over the declaratory judgment action.

Not so, ruled the judge. The court retained jurisdiction over Applus’ claim for attorney’s fees. This, in turn, required consideration of the alleged inequitable conduct. A finding of inequitable conduct “automatically triggers unenforceability.” Thus, the claim for attorney’s fees could result in a finding of unenforceability despite the dismissal of Applus’ counterclaims and despite the covenant not to sue granted to Applus.

THE LESSON TO BE LEARNED: When settling a case, make sure ALL of the issues are addressed.