Under the doctrine of no licensee estoppel set forth in Lear v. Adkins, 395 U.S. 653 (1969), public policy demands that a patentee generally cannot contractually prohibit a licensee from challenging the validity of a patent.  Applying this doctrine, the district court in Rates Technology Inc. v. Speakeasy, Inc., No. 10 Civ. 6482(DLC), 2011 WL 1758621, *3-*5 (S.D.N.Y. May 9, 2011), held unenforceable a liquidated damages provisions in a licensing agreement entered into to settle a patent infringement dispute before litigation commenced that provided that in the event the licensee challenged the validity of certain patents owned by the licensor, the licensee would have to pay $12 million in liquidated damages to the licensor. 

The court concluded that the liquidated damages provision “ directly contravenes the public interest in litigating the validity of patents.”  Id.  It further ruled that “strong policy in favor of enforcing settlement agreements,” and therefore enforcing the liquidated damages provision as requested by the licensor, “does not outweigh the specific concerns addressed in Lear and its Second Circuit progeny.”  Id.  Distinguishing the authority cited by the licensor, the district court noted the since the specific agreement was entered into before the parties initiated any litigation, other judicial opinions upholding restrictions on challenging a patent’s validity entered into after the parties had begun litigation were inapposite.

Granting the licensee’s motion to dismiss the licensor’s breach of contract claim, the court ultimately ruled that “[w]here, as here, an agreement purports to deprive a licensee of any opportunity to challenge validity, it directly contravenes ‘the important public interest in permitting full and free competition in the use of ideas.’”  Id.

For additional materials on licensee estoppel see generally Annotated Patent Digest § 35:38 No Licensor Estoppel.