On August 27, 2020, the Seoul Central District Court rendered a decision that the scope of a covenant not to sue clause contained in a settlement agreement made between two leading Korean battery companies regarding a Korean patent did not extend to cover the U.S. counterparts corresponding to the Korean patent.

▶Background of the Case

In 2014, SK Innovation (“SK”) and LG Chem (“LG”) reached a settlement agreement (“2014 Agreement”) containing a covenant not to sue clause, while terminating litigations associated with a battery separator-related patent registered in Korea, i.e., Korean Patent No. 775310 (“KR 310 patent”).  The 2014 Agreement in relevant parts reads (emphasis added):

For the long-term growth and development of each company, the defendant company and the plaintiff company reach the following agreements, while terminating all litigations and disputes relating to Patent Registration No. 775310 on the ceramic coating separator (hereinafter referred to as “Subject Patent”), which have been maintained since 2011....

4. The defendant company and the plaintiff company agree not to file a lawsuit requesting injunction against infringement or compensation for damages or claiming patent invalidation in relation to the Subject Patent either directly or through the affiliated companies thereof inside/outside this country hereafter.

In April 2019, however, LG sued SK for trade secret misappropriation regarding battery the United States International Trade Commission technology in (“USITC”) and the Delaware District Court, which triggered the resumption of multiple legal battles between the two arch-rivals in EV battery industry. 

LG further filed a complaint with the USITC on September 26, 2019, alleging SK’s lithium-ion battery cells and products incorporating the same infringed upon LG’s patents, including the three U.S. counterparts of the KR 310 patent. On the same day, LG also initiated a patent infringement action against SK based on the same patents in the Delaware District Court.  

In response, SK filed a complaint on October 22, 2019 against LG with the Seoul Central District Court, alleging that LG breached the 2014 Agreement by initiating patent infringement proceedings based on the U.S. counterparts of the KR 310 patent in the U.S.

▶Summary of the Decision

The main issue presented before the Seoul Central District Court was whether the covenant not to sue clause contained in the 2014 Agreement was applicable to the U.S. counterparts of the KR 310 patent.

The Court held that the patent being subjected to the 2014 Agreement was limited to the KR 310 patent, and the scope of the covenant not to sue clause contained in the 2014 Agreement did not extend to litigations based on its U.S. family patents, for the following reasons:

(i) Since the preface of the 2014 Agreement describes the patent being subject thereto as the ‘Subject Patent,’ it is prima facie obvious from the context thereof that the patent covered by the 2014 Agreement is limited to the KR 310 patent in view of the phrase of the preface “while terminating all litigations and disputes relating to Patent Registration No. 775310 on the ceramic coating separator (hereinafter referred to as “Subject Patent”).”

(ii) Further, since Item 4 of the 2014 Agreement, which stipulates the covenant not to sue, clearly indicates “in relation to the Subject Patent,” it is natural from its context to limit the patent covered by the covenant not to sue provision to the KR 310 patent.  As argued by SK, Item 4 includes the term “inside/outside this country,” which may be interpreted as extending the meaning of “in relation to the Subject Patent” to cover the U.S. family patents. However, such interpretation suggested by SK may unduly expand the plain and ordinary meaning of “in relation to the Subject Patent” to cover all foreign family patents and is regarded as deviating from the literal and objective meaning thereof.  

(iii) In addition, during the period of settlement negotiations between LG and SK, the broad expression “in relation to patented technology and technology closely related to patented technology” contained in Item 4 (i.e., the covenant not to sue provision) of the settlement agreement draft initially proposed by SK was revised by LG to specify the KR 310 patent (i.e., the Subject Patent) only. Thus, it is presumed that SK recognized LG’s intent to limit the patent to be covered in the covenant not to sue clause to the KR 310 patent and conceded to such limitation.

SK has appealed the above decision to the Seoul High Court and an appeal decision is expected to be rendered in the middle of 2021.