Issue 05/8 | February 18, 2005
CAFC Construes Consent Judgment Narrowly: Successor-In-Interest Cannot Sue

Often in intellectual property cases, disputes are resolved by the entry of a consent judgment setting forth the terms of the parties' settlement. In drafting the consent judgment, the patent holder undoubtedly will focus on including terms that will "lock up" the accused infringer by requiring him to refrain from future acts of infringement. Usually, these terms will extend to the accused infringer's successors-in-interest, employees, its servants, and all persons acting under, or in concert with him. Less thought, however, is often given to securing important rights for the patent holder's successors and assigns, such as the right to enforce the consent judgment. Based upon a recent CAFC decision, it is clear that care must be taken to expressly include language binding the patent holder's successors and assigns to enable their enforcement of the consent judgment. Mark Thatcher, et al. v. Kohl's Department Stores, Inc., et al., 2005 WL 310875 (Fed. Cir. 2005).

Thatcher developed a footwear product known as the TEVA(r) sandal and sued Kohl's for patent, copyright and trade dress infringement based upon Kohl's sale of an imitation sandal. The district court entered a consent judgment settling the dispute. A paragraph discussing Kohl's obligation to avoid infringing activities extended to Kohl's "agents, servants, employees, successors-in-interest, subsidiaries and all persons acting under, in concert with, or for them . . . ." Thatcher then sold his intellectual property rights in the TEVA(r) sandal to Deckers who sued Kohl's for contempt of the consent judgment alleging that Kohl's had resumed its sale of imitation sandals. The consent judgment named Thatcher as an individual but made no mention of Deckers or any other successors-in-interest. The consent judgment was also devoid of any language assigning any of Thatcher's rights and obligations. The district court found that Deckers lacked standing because it was not a party to the consent judgment and the consent judgment lacked a provision extending the judgment to Thatcher's successors-in-interest as it did for Kohl's. Citing United States v. Armour & Co., 402 U.S. 673 (1971).

On appeal, the CAFC affirmed. Finding that interpretation of a settlement agreement is not a matter unique to patent law, the CAFC applied the law of the regional circuit (7th circuit) to interpret the consent judgment and applied rules of contract interpretation. The court determined that there was nothing expressly set out in the consent judgment between Thatcher and Kohl's extending Thatcher's rights to any third-party, including any "successor-in-interest." According to the court, "[t]his silence is the functional equivalent of the parties' express intent to exclude language of assignment." The court found it significant that the consent judgment specified successors and assigns when listing Kohl's obligations but omitted such language when listing Thatcher's obligations. The court also noted that at the time Thatcher sued Kohls, he also sued Wal-Mart for allegedly infringing the same trade dress. In settling that case, Thatcher and Wal-Mart both bound their "successors and assigns." According to the court, Thatcher and Deckers must live with the consequence for failing to include similar language of assignability here.

To discuss this decision or its implications further, please feel free to contact the author, Michael J. Berkowitz, (mjberkowitz@crbcp.com), (215) 567-2010 at Caesar, Rivise, Bernstein, Cohen & Pokotilow, Ltd. in Philadelphia, PA, USA.

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