United States Court of Appeals
for the Federal Circuit
__________________________
BASELOAD ENERGY, INC.,
Plaintiff-Appellant,
v.
BRYAN W. ROBERTS,
Defendant-Appellee.
__________________________
2010-1053
__________________________
Appeal from the United States District Court for the
District of Columbia in case no. 08-CV-1838, Judge Paul
L. Friedman.
___________________________
Decided: September 9, 2010
___________________________
JOHN M. WEYRAUCH, Dicke, Billig & Czaja, PLLC, of
Minneapolis, Minnesota, argued for plaintiff-appellant.
With him on the brief were PATRICK G. BILLIG and PAUL P.
KEMPF.
WILLIAM T. BISSET, Hughes Hubbard & Reed LLP, of
Los Angeles, California, argued for defendant-appellee.
With him on the brief was JASON S. COHEN, of Washing-
ton, DC.
__________________________
BASELOAD ENERGY v. ROBERTS 2
Before LOURIE, LINN, and DYK, Circuit Judges.
DYK, Circuit Judge.
Baseload Energy, Inc. (“Baseload”) sought a declara-
tory judgment that U.S. Patent No. 6,781,254 (“the ’254
patent”) owned by Bryan W. Roberts (”Roberts”) was
invalid and unenforceable. On summary judgment, the
district court held that the terms of a 2008 Settlement
Agreement (the “Settlement Agreement”) barred “all
claims between the parties,” including the present action.
See Baseload Energy, Inc. v. Roberts, 654 F. Supp. 2d 21,
27 (D.D.C. 2009). We reverse, because we conclude that
the language of the Settlement Agreement did not release
either claims of infringement of the ’254 patent or the
accompanying defenses of invalidity or unenforceability.
BACKGROUND
This action represents the second round of litigation
between these parties and their affiliates concerning a so-
called “flying electric generator” (“FEG”). In this action,
Baseload is the plaintiff, and Roberts is the defendant.
The FEG is a flying wind turbine, which harvests wind
power and transmits it through tethers to ground stations
linked to a utility grid. The ’254 patent issued on August
24, 2004, to Roberts. The invention of the ’254 patent
comprises “[a] windmill kite for converting the kinetic
energy of high altitude winds into useful work or other
forms of energy.” ’254 patent col.7 ll.44-46. Roberts, the
owner of the ’254 patent, founded the Sky WindPower
Corporation (“SWPC”) to produce and market the FEG
technology. SWPC’s president is David Shepard
(“Shepard”), while Roberts is SWPC’s chairman. SWPC is
the exclusive licensee of the ’254 patent pursuant to a
written agreement dated April 15, 2008.
3 BASELOAD ENERGY v. ROBERTS
David Resnick (“Resnick”), the founder and chief ex-
ecutive officer of Baseload, is a venture capitalist inter-
ested in wind energy projects. In June of 2006, Resnick
expressed interest in a potential joint venture between
SWPC and Baseload. Following a subsequent meeting,
the parties allegedly entered into an oral agreement, by
which SWPC and Roberts agreed to assign the ’254 patent
rights to a new venture, Sky Power LLC (“Sky Power”), a
limited liability company that would be created specifi-
cally for the venture. SWPC and Roberts would receive
an 80% interest in Sky Power, while Resnick would have
a 20% ownership interest and would serve as the chief
executive officer of Sky Power. Sky Power was to raise an
equity investment of $30 million from additional investors
for the development of the FEG project. A written agree-
ment memorializing the oral agreement was prepared,
but it was never signed by the parties. Baseload, in this
action, alleged that in reliance on Resnick’s understand-
ing of the agreement, Resnick immediately began to
perform under the contract, forming Sky Power LLC,
developing a business plan, and contacting investors.
Subsequently, the relationship between Resnick and
Roberts broke down. On May 4, 2007, Resnick and Sky
Power initiated litigation in the United States District
Court for the Southern District of California against
Roberts, SWPC, and SWPC’s president, Shepard, for
various state law breach of contract, fraud, and promis-
sory estoppel claims (hereinafter the “breach of contract”
action). The complaint sought $1 million in compensatory
damages for breach of contract, as well as an order com-
pelling SWPC and Roberts’ performance of the terms of
the oral agreement. Complaint at 23-24, Resnick v.
Shepard, No. 07-CV-0813-L (S.D.C.A. May 7, 2004). The
complaint included no allegations of patent invalidity.
BASELOAD ENERGY v. ROBERTS 4
On March 19, 2008, the parties entered into the Set-
tlement Agreement. The Settlement Agreement con-
tained the following release provision, releasing claims
that Resnick, Baseload, and Sky Power (collectively, the
“Resnick Parties”) could have brought against Shepard,
SWPC, and Roberts (collectively, the “SWPC Parties”):
3. Resnick Parties’ Release. Resnick, SPLLC [Sky
Power], BEI [Baseload], and Grenier, on behalf of
themselves, any entity in which any of them has
an interest and any employee, affiliate, or co-
owner of any such entity, and their respective
spouses, agents, partners, members, representa-
tives, heirs, attorneys, shareholders, officers, di-
rectors, employees, affiliates, parents,
subsidiaries, successors and assigns (collectively,
“Resnick Parties”), forever release and discharge
Shepard, the Shepard estate, SWPC and Roberts,
any entity in which any of them has an interest
and any employee, affiliate or co-owner of such en-
tity, and their respective predecessors, successors
and present or former affiliates and their respec-
tive spouses, agents, members, representatives,
heirs, attorneys, shareholders, officers, directors,
employees, affiliates, parents, subsidiaries, suc-
cessors and assigns (collectively, “SWPC Parties”),
of and from any and all losses, liabilities, claims,
expenses, demands and causes of action of every
kind and nature, known and unknown, suspected
and unsuspected, disclosed and undisclosed, fixed
and contingent, whether direct or by way of in-
demnity, contribution or otherwise, that the Res-
nick Parties ever had, now have, or hereafter may
have or be able to assert against the SWPC Par-
ties by reason of any matter, cause or circum-
stance whatsoever arising or occurring prior to
5 BASELOAD ENERGY v. ROBERTS
and including the date of this Agreement, as
stated in its first sentence, that arise from or re-
late in any way, directly or indirectly, to SWPC,
the Resnick Action, the Grenier Action or any
plan or effort to research or develop a flying elec-
tric generator (“FEG”).
Settlement Agreement ¶ 3 (emphasis added). Paragraph
4 of the Settlement Agreement contained an identical
release of claims that could be brought by the SWPC
Parties against the Resnick Parties. See id. ¶ 4. 1 Para-
graph 6 provided that the parties “hereto represent and
warrant that they are aware of no right or claim, and no
fact that might give rise to a right or claim, against a
released party or his or its related persons and entities
referred to in paragraphs 3 or 4 above that this Agree-
ment does not effectively release.” Additionally, the
Settlement Agreement included an Option Agreement, by
which Roberts and SWPC granted Baseload an option to
acquire a nonexclusive license under the ’254 patent at a
price of $1.75 million, payable in installments; the Option
1 Paragraph 4 contains language identical to Para-
graph 3: “The SWPC Parties forever release and dis-
charge the Resnick Parties of and from any and all losses,
liabilities, claims, expenses, demands, and causes of
action of every kind and nature, known and unknown,
suspected and unsuspected, disclosed and undisclosed,
fixed and contingent, whether direct or by way of indem-
nity, contribution or otherwise, that the SWPC Parties
ever had, now have, or hereafter may have or, be able to
assert against the Resnick Parties by reason of any mat-
ter, cause or circumstance whatsoever arising or occurring
prior to and including the date of this Agreement, as
stated in its first sentence, that arise from or relate in any
way, directly or indirectly, to SWPC, the Resnick Action,
the Grenier Action or any plan or effort to research or
develop an FEG.”
BASELOAD ENERGY v. ROBERTS 6
Agreement was appended to the Settlement Agreement as
“Exhibit C,” while the Nonexclusive Patent License (“the
License Agreement”) was appended as “Exhibit D.” 2 The
release expressly exempted disputes arising from the
Option Agreement and License Agreement from the scope
of the release. J.A. 78 (”Anything herein to the contrary
notwithstanding, the releases given in paragraphs 3 and 4
above shall not cover or extend to any losses, liabilities,
claims, expenses, demands and/or causes of action arising
from or relating to the breach by any party of this Agree-
ment or Exhibits C or D attached hereto.”). Pursuant to a
joint stipulation of the parties, the breach of contract
action was dismissed by the district court.
On September 15, 2008, the option granted to
Baseload pursuant to the Settlement Agreement lapsed
when Baseload was unable to secure financing to pay the
licensing fee. As a result, Baseload could not develop the
FEG technology without risking an infringement suit
brought by Roberts under the ’254 patent. On October 27,
2008, Baseload filed this action against Roberts, seeking a
declaratory judgment that the ’254 patent is invalid and
unenforceable.
Roberts moved for summary judgment on the ground
that Baseload’s claims were barred by the 2008 Settle-
2 Paragraph 8 of the Settlement Agreement
provides:
Concurrently with the exchange of exe-
cuted counterparts of this Agreement, SWPC,
Roberts, BEI and Resnick shall exchange executed
counterparts of an option agreement, in the form
attached hereto as Exhibit C (“Option Agree-
ment”), providing BEI an option to acquire a non-
exclusive patent license pursuant to an agreement
in the form attached hereto as Exhibit D (“Nonex-
clusive Patent License Agreement”).
7 BASELOAD ENERGY v. ROBERTS
ment Agreement. The district court granted Roberts’
summary judgment motion, concluding that the “unambi-
guous and expansive language” of the Settlement Agree-
ment barred all claims deriving “from events occurring
before March 18, 2008” and “aris[ing] from or relat[ing] in
any way” to “any plan or effort to research or develop a
flying electric generator.” Baseload, 654 F. Supp. 2d at
26, 27. The court reasoned that both Roberts’ and
SWPC’s infringement claims and Baseload’s patent inva-
lidity and unenforceability claims clearly fell within this
category of claims, as the development and patenting of
the FEG technology that is the subject of the ’254 patent
occurred before March 18, 2008, and was clearly related
to an effort to research or develop a flying electric genera-
tor. The district court rejected Baseload’s arguments that
this release failed to meet the standard laid out by Flex-
Foot, Inc. v. CRP, Inc., 238 F.3d 1362 (Fed. Cir. 2001), for
the valid release of patent claims. It noted that while this
court upheld the particular release provision laid out in
Flex-Foot, “it did not announce that only provisions aris-
ing from precisely the same set of circumstances and
containing the same or similar language could pass mus-
ter.” Baseload, 654 F. Supp. 2d at 27. Baseload timely
appealed, and we have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(1).
DISCUSSION
This court reviews grants of summary judgment with-
out deference. Young v. Lumenis, Inc., 492 F.3d 1336,
1345 (Fed. Cir. 2007); Johns Hopkins Univ. v. Cellpro,
Inc., 152 F.3d 1342, 1353 (Fed. Cir. 1998). Summary
judgment is, of course, appropriate “if the pleadings, the
discovery and disclosure materials on file, and any affida-
vits show that there is no genuine issue as to any mate-
rial fact and that the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(c).
BASELOAD ENERGY v. ROBERTS 8
Baseload asserts that the correct law for us to apply
in this case is Federal Circuit law, because the question of
whether a settlement agreement bars a party from chal-
lenging the validity of a patent in a subsequent action is
intertwined with the substance of enforcement of a patent
right. See, e.g., Flex-Foot, 238 F.3d at 1365 (“[W]hether
public policy precluding patent license estoppel should
extend to a waiver of validity challenges in a settlement
agreement[] is intimately related with the substance of
enforcement of a patent right. Therefore, we will apply
our law to these issues.”). Roberts appears to agree.
Under Flex-Foot, we apply Federal Circuit law in resolv-
ing the issues in this case.
In Lear, Inc. v. Adkins, 395 U.S. 653 (1969), the Su-
preme Court eliminated the doctrine of “licensee estop-
pel,” citing the “important public interest in permitting
full and free competition in the use of ideas.” Id. at 670.
Under Lear, a licensee of a patent is not estopped from
challenging the validity of the licensed patent by virtue of
the license agreement. Id. at 671. In subsequent cases,
our court and our predecessor court have confronted the
question of whether consent decrees and settlement
agreements may at one and the same time provide for a
patent license while barring challenges to patent invalid-
ity and unenforceability. We have held that Lear does not
render such agreements unenforceable, because of the
strong policy in favor of settlement of litigation and, in
the case of consent decrees, the policy in favor of res
judicata. See Flex-Foot, 238 F.3d at 1368 (“[T]he impor-
tant policy of enforcing settlement agreements and res
judicata must themselves be weighed against the federal
patent laws’ prescription of full and free competition in
the use of ideas that are in reality a part of the public
domain.”); Foster v. Hallco Mfg. Co., Inc., 947 F.2d 469,
474-75 (Fed. Cir. 1991) (“In [the situation where litigation
9 BASELOAD ENERGY v. ROBERTS
is terminated by a consent decree which acknowledges a
patent’s validity], other public policy considerations come
into play, namely, preserving the finality of judgments as
well as the strong public policy of encouraging settle-
ments.”). Rather, the policies of Lear and the interests of
settlement must be balanced. As we noted in Foster,
“[b]arring subsequent challenges favors the public policy
of encouraging voluntary settlement; at the same time, a
narrow construction of such provisions favors challenges
to validity. Id. 480. Thus, a balance in the policy ex-
pressed in Lear and the interest in encouraging settle-
ment is achieved.” The result is that invalidity and
unenforceability claims may be released, but only if the
language of the agreement or consent decree is clear and
unambiguous. 3
Baseload first argues that the district court erred in
granting summary judgment because the Settlement
Agreement fails to meet the standard set out in Flex-Foot
for a valid release of patent claims. In Flex-Foot, the
parties had settled two prior patent-related suits. 238
F.3d at 1363-64. The first suit, an infringement suit by
Flex-Foot, Inc. (“Flex-Foot”) against CRP, Inc. d/b/a
Springlite (“Springlite”), resulted in a settlement agree-
3 See Ecolab, Inc. v. Paraclipse, Inc., 285 F.3d 1362,
1377 (Fed. Cir. 2002) (holding that the consent decree
language “the ’690 patent is a valid patent” was not
sufficiently clear to foreclose a validity defense in a new
infringement suit involving a new product); Flex-Foot, 238
F.3d at 1370 (“Based on the clear and unambiguous
waiver of future challenges to the validity of the ’363
patent in the settlement agreement voluntarily entered
into by the parties in this case, we hold that Springlite is
contractually estopped from challenging the validity of
the ’363 patent . . . .”); Diversey Lever, Inc. v. Ecolab, Inc.,
191 F.3d 1350, 1352 (Fed. Cir. 1999) (“[A]ny surrender of
the right to challenge validity of a patent is construed
narrowly.”).
BASELOAD ENERGY v. ROBERTS 10
ment and a corresponding license agreement for U.S.
Patent No. 4,822,363 (“the ’363 patent”) to Springlite that
allowed Springlite to challenge patent validity in a later
action. Id. at 1363. The second suit, a declaratory judg-
ment action to invalidate the ’363 patent brought by
Springlite, proceeded through discovery and a fully
briefed motion for summary judgment regarding
Springlite’s invalidity allegations. Id. While that motion
was pending, however, the parties settled the case, result-
ing in the following settlement agreement:
The CRP Group agrees not to challenge or cause
to be challenged, directly or indirectly, the validity
or enforceability of the ’913 patent and/or the ’363
patent in any court or other tribunal, including
the United States Patent and Trademark Office.
As to the ’363 and ’913 patents only, the CRP
Group waives any and all invalidity and unen-
forceability defenses in any future litigation, arbi-
tration, or other proceeding. This waiver applies to
any product made, used, or sold by the CRP Group
or any of their assignees, successors or those who
act for or in concert with any of them at any time
during the life of either the ’363 or ’913 patents.
Id. at 1364. In 1997, Flex-Foot filed a new complaint
alleging that Springlite’s product infringed the ’363
patent. In accordance with the arbitration clause of the
settlement agreement, the dispute was sent to an arbitra-
tion panel, which found that the device infringed the ’363
patent. Springlite objected to the award on the ground
that the ’363 patent was invalid and unenforceable. The
district court granted Flex-Foot’s motion to enforce the
arbitration award, concluding that Springlite was “collat-
erally estopped” from challenging the validity and en-
forceability of the ’363 patent. Id.
11 BASELOAD ENERGY v. ROBERTS
We affirmed, once again reaffirming the requirement
that the release language must be clear and unambiguous
to release patent invalidity claims. We concluded that
“[b]ased on the clear and unambiguous waiver of future
challenges to the validity of the ’363 patent in the settle-
ment agreement voluntarily entered into by the parties in
this case . . . Springlite is contractually estopped from
challenging the validity of the ’363 patent.” Id. at 1370.
We cited the following factors relevant to our analysis:
Once an accused infringer has challenged pat-
ent validity, has had an opportunity to conduct
discovery on validity issues, and has elected to
voluntarily dismiss the litigation with prejudice
under a settlement agreement containing a clear
and unambiguous undertaking not to challenge
validity and/or enforceability of the patent in suit,
the accused infringer is contractually estopped
from raising any such challenge in any subse-
quent proceeding.
Id.
Baseload argues that these factors are determinative,
and that the Settlement Agreement in this case is inade-
quate to release its patent invalidity claims, because the
prior litigation between the parties did not involve patent
invalidity issues or actual litigation on those issues. We
disagree. Contrary to Baseload’s argument, while the
absence of a prior dispute and litigation as to invalidity is
pertinent, we do not think that a settlement agreement is
ineffective to release invalidity claims unless the exact
circumstances described in Flex-Foot are present. Each
case must be examined on its own facts in light of the
agreement between the parties. In the context of settle-
ment agreements, as with consent decrees, clear and
unambiguous language barring the right to challenge
BASELOAD ENERGY v. ROBERTS 12
patent validity in future infringement actions is suffi-
cient, even if invalidity claims had not been previously at
issue and had not been actually litigated.
Here, however, there is no such clear language, and
there was no release of either patent claims or defenses.
There is no specific language in the settlement agreement
making reference to invalidity issues. There is also
reason to question whether the general language of the
agreement was intended to cover such disputes. This is so
because there was no issue in the breach of contract
litigation concerning patent infringement or patent inva-
lidity and unenforceability and no prior dispute between
the parties as to such issues. Most importantly, the
parties could not possibly have intended to release any
and all patent infringement claims, because the Settle-
ment Agreement granted Baseload an option to acquire a
nonexclusive license to use the technology claimed by the
’254 patent. The license provision would be unnecessary
if all infringement claims under the ’254 patent were
released. At the same time, the parties could not have
intended to bar infringement claims if the Resnick parties
did not acquire a license. The parties must have intended
to exclude infringement from the scope of the Settlement
Agreement. We reached a similar conclusion in How-
medica Osteonics Corp. v. Wright Medical Technology,
Inc., 540 F.3d 1337 (Fed. Cir. 2008). In that case, there
were two settlement agreements, one including broader
release language, 4 (“the New Jersey agreement”) and a
more narrowly tailored agreement (“the Massachusetts
4 The release language stated that the agreement
applied to “any and all manner of claims . . . that [How-
medica] . . . has, ha[s] had, or may have against Wright
Medical . . . including, but not limited to, any and all
claims and counterclaims that were or could have been
asserted in the lawsuit.” Howmedica, 540 F.3d at 1342.
13 BASELOAD ENERGY v. ROBERTS
agreement”) that was limited to the claims or controver-
sies that “were or could have been asserted” in the set-
tling litigation over four patents. Id. at 1342. After the
execution of the releases, Howmedica brought suit alleg-
ing infringement of U.S. Patent No. 5,824,100 (“the ’100
patent”), which had not been at issue in the prior litiga-
tion. We held that broad release language of the New
Jersey agreement did not cover claims of infringement of
the ’100 patent, because the companion Massachusetts
agreement made clear that the release provision was only
intended to resolve the previously pending litigation over
four patents asserted in the first litigation (which did not
include the ’100 patent). Id. at 1350. The New Jersey
settlement also included cross-licenses for four asserted
patents, although there was no license under the ’100
patent. We concluded that “[g]iven the structure of the
agreements it is on its face unlikely that the parties
would exclude the ’100 patent from the cross-licensing
provisions but effectively grant rights in the patent . . . by
virtue of the release provision.” Id.
Similarly, in this case it is impossible to read the Set-
tlement Agreement in light of the license provision as
releasing infringement claims relating to the ’254 patent.
If infringement claims were preserved, then it necessarily
follows in the circumstances of this case that the defenses
to infringement, including invalidity defenses, were also
preserved. As we noted earlier, the language of the
agreement is general and makes no specific reference to
other patent claims or defenses. The language of the
agreement cannot be read to distinguish between in-
fringement and invalidity claims. There is nothing in the
text of the Settlement Agreement to suggest in this case
that somehow the infringement claims were preserved
while patent invalidity defenses were released. Thus, the
BASELOAD ENERGY v. ROBERTS 14
clear and unambiguous language necessary to effect a
release of patent invalidity defenses is not present. 5
We conclude that the Settlement Agreement did not
release the defenses of invalidity and unenforceability.
REVERSED AND REMANDED
5 It is also noteworthy that the license provision
of the Settlement Agreement did not bar an invalidity
challenge. In both Lear and in MedImmune, Inc. v.
Genentech, Inc., 549 U.S. 118 (2007), the Supreme Court
held that a licensee under such an agreement may chal-
lenge the validity of the patent. See MedImmune, 549
U.S. at 135 (holding that a licensee could challenge the
validity of the patent despite a promise to pay royalties on
patents “‘which have neither expired nor been held inva-
lid by a court . . . .’ Promising to pay royalties on patents
that have not been held invalid does not amount to a
promise not to seek a holding of their invalidity.” (quoting
the relevant agreement)).