Whose License is it Anyway? The Federal Circuit’s VDPP & TexasLDPC Decisions

This summer, the Federal Circuit issued two opinions with serious implications for entities that deal in patent licensing. First, in VDPP, LLC v. Volkswagen Group of America, Inc., the Federal Circuit restricted the ability of non-practicing entities (“NPEs”) to recover pre-suit damages by extending “constructive notice” under 35 U.S.C. § 287(a) to require patent marking when NPEs settle with accused infringers. Second, in TexasLDPC Inc. v. Broadcom Inc., the Federal Circuit opened the door for exclusive licensees to become NPEs absent express contractual provisions to the contrary. These decisions, particularly VDPP, reshape how patent licensees should approach negotiation, settlement, and enforcement of patent rights.

VDPP, LLC v. Volkswagen Group of America, Inc. The Federal Circuit’s decision in VDPP clarifies the marking requirements a patentee must satisfy to recover pre-suit damages. Specifically, the court expanded § 287(a)’s limitation on damages to preclude pre-suit damages where a patentee (including an NPE) settles with an accused infringer that then fails to mark its products with the patent number. As the Federal Circuit reasoned:

Here, all eleven settlement agreements were fashioned as standard licensing agreements to make, use, and sell licensed products, with one agreement going as far as specifying VDPP’s licensee has no obligation to mark. Moreover, VDPP continues to maintain that all the licensed products covered under its prior settlement agreements infringe. Under the facts of this case, we see no way for VDPP to amend its complaint to plausibly allege it made reasonable efforts to ensure its licensees complied with 35 U.S.C. § 287.

Under § 287(a), absent actual notice, a patent infringement plaintiff ordinarily can recover pre-suit damages only if it marks its patented products with the patent number. Section 287 protects the unsophisticated entrepreneur who, without notice, might not know that goods in the marketplace are patented. Historically, however, § 287 has been toothless against NPEs because they have no patented products to mark. Before VDPP, previously accused infringers could sell unmarked products without affecting the NPE’s damages in its next litigation.

VDPP builds on Arctic Cat Inc. v. Bombardier Recreational Products Inc., a 2020 case in which the Federal Circuit addressed a related problem: a patentee that fails to make reasonable efforts to ensure its licensees comply with the marking statute. Arctic Cat had licensed a patent to Honda without requiring Honda to mark the associated products. The court denied Arctic Cat pre-suit damages despite the defendant’s willful infringement because § 287 requires actual notice by the patentee. In short, by allowing Honda to sell the invention unmarked, Arctic Cat relinquished its right to pre-suit damages.

VDPP extends Arctic Cat to settlement agreements, treating them as “standard licensing agreements to make, use, and sell licensed products.” Quoting TransCore, LP v. Elec. Transaction Consultants Corp., the court stressed that “whether an agreement is framed in terms of a ‘covenant not to sue’ or a ‘license’” is a difference “only . . . of form, not substance.” VDPP thus implies that silence on marking does not constitute “reasonable efforts” to comply with § 287, although one settlement’s express disclaimer of any marking obligation muddies this implication.

Practical Implications. VDPP could substantially alter NPE licensing and enforcement because it effectively forces NPEs to choose between bargaining for a marking provision in every settlement and forfeiting pre-suit damages in future litigation on the patent. Going forward, NPE settlements will need to price in the presence or absence of a marking provision or contract around infringement responsibility and “reasonable efforts” to mark. NPEs are also likely to increase their efforts to provide actual notice under § 287 by sending notice letters earlier and with greater detail as to the specific patents and theories of infringement.

It should also be noted that other Texas courts have held that dismissals with prejudice operate as covenants not to sue and therefore implicate § 287(a),¹ but further application beyond this one decision remains unclear. How courts apply these decisions will determine whether NPEs can pursue full-scope damages, while giving accused infringers new avenues to attack pleadings and limit exposure.  

Alternatively, NPEs may acquire and assert more method patents, which typically do not require marking because there is no product to mark.

TexasLDPC Inc. v. Broadcom Inc. In TexasLDPC, the Federal Circuit held that a patent license that terminates when the licensee ceases “business operations” does not necessarily end when the licensee’s sole business is patent enforcement. To an NPE, this result may seem obvious; many large, successful businesses exist solely to aggregate and enforce intellectual property rights. But innovators, such as universities that license intellectual property expecting the licensee to commercialize the patented product, should treat TexasLDPC as a warning to review their current and future licensing arrangements.

The case arose from TexasLDPC’s exclusive license to technology Texas A&M University developed. Under the parties’ 2015 agreement, the license served “A&M’s desire to commercialize the intellectual property for the public benefit and welfare” through TexasLDPC's “expertise in commercialization and development.” The agreement provided that the license would automatically and immediately terminate if TexasLDPC ceased “business operations.” Under the license, TexasLDPC had the ability to enforce the patent against infringers. Three years later, when TexasLDPC sued Broadcom, it had not commercialized the invention and had turned solely to enforcing the patent as an NPE.

In interpreting the contract, the Federal Circuit shifted the paradigm between innovators and exclusive licensees. Although the court acknowledged the agreement’s “broad and generic” purpose language, it held that such language could not change the meaning of unambiguous operative terms. The court read “business operations” alongside provisions granting TexasLDPC the right to use, sublicense, and enforce the patent as equal aspects of its license. Read together, the court reasoned, “the Agreement unambiguously contemplates enforcement as one of TexasLDPC’s business operations.” The license therefore survived TexasLDPC’s shift to NPE status, and TexasLDPC retained the right to enforce the patent.

Practical Implications. After TexasLDPC, innovators such as universities that license intellectual property must identify the primary goal of their licensing and draft clear language to prevent undesirable outcomes. Patentees seeking public benefit and wishing to restrict use by NPEs must draft terms that unambiguously tie the license’s scope to the licensee’s concrete steps toward commercialization. Ultimately, the contract’s operative terms control, and peripheral statements of purpose are unlikely to persuade a court. By drawing a reasonably bright line, TexasLDPC can reduce drafting uncertainty and the concomitant risk premium both sides pay.

If you have any questions about the issues raised in this alert, please contact the authors or the Womble Bond Dickinson attorneys with whom you normally work.