Federal Circuit Affirms Subject Matter Jurisdiction Despite Executed Covenant Not to SueMay 17, 2017
► Arcelormittal et al. v. AK Steel Corp., et al. (Fed. Cir., May 16, 2017) (before Moore, Wallach, and Hughes, J.) (opinion for the Court, Hughes, J.) (dissent by Wallach, J.)
A “covenant not to sue” is a legal agreement in which a party seeking damages agrees not to sue the party that it has a cause-of-action against. On May 16, 2017, the Federal Circuit affirmed the subject matter jurisdiction of a lower court even though the parties had executed a covenant not to sue.
In 2010, ArcelorMittal sued AK Steel Corporation for infringing U.S. Patent No. 6,296,805. This suit ultimately led to three separate actions (Civ. No. 10-050-SLR, Civ. No. 13-685-SLR and Civ. No. 13-686-SLR) that have been repeatedly considered by the Federal Circuit in a number of appeals.
In September 2015, ArcelorMittal moved to dismiss for lack of jurisdiction based, in part, on an unsigned draft covenant not to sue. Later, during the lower court’s consideration of the motion, ArcelorMittal submitted a letter attaching an executed covenant not to sue the defendants and their customers. The covenant stated that the plaintiffs “hereby irrevocably covenant not to sue [the defendants] . . . , and the customers of [the defendants] . . . for any use of the [patent at issue] and all actions in connection with manufacture and sale of [the patented products] . . . in the United States . . . .” Importantly, ArcelorMittal’s letter to the lower court explained that it was “tender[ing] the covenant conditioned on resolution of its motion . . . .” After the lower court denied ArcelorMittal’s motion to dismiss for lack of subject matter jurisdiction, ArcelorMittal appealed to the Federal Circuit.
Although the opinion issued on May 16, 2017, appears to acknowledge that the executed covenant not to sue was facially unconditional, the Court affirmed the denial of ArcelorMittal’s motion to dismiss because the Court found that the conditional language contained in the letter accompanying the executed covenant rendered the covenant a conditional agreement.
In reaching its decision, the Court relied upon the so-called “all-the-circumstances test” that was articulated by the Supreme Court in MedImmune in the context of jurisdiction under the Declaratory Judgment Act.[i] Under this test, the analysis of subject matter jurisdiction must determine whether “the facts alleged, under all the circumstances, show that there is a substantial controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Applying this standard to the mootness doctrine, the Federal Circuit found that the covenant not to sue did not moot the controversy because it did not unconditionally assure the defendants and their customers that ArcelorMittal would never assert claims against them.
Specifically, the Court found that the letter and the executed covenant—taken together—were conditioned on the resolution of a pending motion in a sister case. Because the letter’s condition remained unsatisfied at the time that the lower court denied ArcelorMittal’s motion, the Federal Circuit agreed that no unconditional covenant was ever unconditionally delivered to the defendants. In the words of the Court, “In this fact-specific context, we must give effect to ArcelorMittal’s express intent to make conditional delivery of an unconditional covenant . . . .”
In dissent, Circuit Judge Wallach pointed out that the express language of the covenant to not sue did not require the satisfaction of a condition precedent to take effect. Therefore, the dissent argued that the covenant’s terms extinguished any substantial controversy between the parties, and the lower court should have granted ArcelorMittal’s motion to dismiss for lack of subject matter jurisdiction.
 MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 S. Ct. 764 (2007).