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Lear Doctrine Requires Licensee's Explicit Notice Of Invalid Claims

Oct.30.2006

In Go Medical Indus. Pty., Ltd. v. Inmed Corp. (formerly known as Medical Marketing Group, Inc. (“MMG”)), (No. 05-1241, October 27, 2006), the Federal Circuit vacates and remands for recalculation the damages awarded by the district court. The Federal Circuit finds that the district court misapplied the doctrine set forth by the Supreme Court in Lear, Inc. v. Adkins , 395 U.S. 653 (1969) (“ Lear ”), which permits a licensee to cease payments due under a license during the time it is challenging patent validity in the court.

In determining that the district court improperly reduced the amount of damages awarded as a result of MMG's breach of its license agreement with Go Medical, the Federal Circuit clarifies that a licensee cannot invoke the protection of Lear until it (i) actually ceases payment of royalties, and (ii) provides notice to the licensor that the reason for ceasing payment is because it has deemed the relevant claims to be invalid. Under this strict interpretation of Lear , the Federal Circuit finds that MMG's notice that it was placing its royalty payments “in an escrow account until such time as the [pending invalidity] appeal is decided” did not provide sufficient notice as to the reason for ceasing payment, and was an implicit acknowledgment that Go Medical was entitled to the royalty payments. Accordingly, MMG is found not to be entitled to the protection of the Lear doctrine.

[http://fedcir.gov/opinions/05-1241.pdf]

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