The intersection of patent enforcement, settlement practices, and statutory compliance has entered a new phase of judicial scrutiny following the United States Court of Appeals for the Federal Circuit’s landmark decision in VDPP v. Volkswagen. Handed down on August 19, 2026, the Federal Circuit’s opinion left little room for ambiguity regarding the treatment of settlement licenses under 35 U.S.C. § 287, the federal patent marking statute. The court made short work of rejecting the patent holder’s argument that settlement licenses occupy a distinct legal category separate from ordinary commercial licenses when it comes to the obligation to mark patented articles.
As legal scholars and intellectual property practitioners digest the fallout from VDPP v. Volkswagen, a consequential follow-up question has rapidly taken center stage in boardrooms and litigation war rooms across the country. Patent holders, continually seeking methods to preserve the recovery of pre-notice damages without shouldering the administrative burdens of policing downstream marking compliance, are actively testing the boundaries of legal nomenclature. Specifically, legal counsel are asking whether a patent holder can successfully sidestep the stringent requirements of the marking statute simply by structuring its settlement agreements as covenants not to sue rather than traditional licenses.
The short legal answer emerging from the current landscape is likely no. However, the technicalities of statutory interpretation reveal that the question is considerably closer than it appears on the surface, providing patentees with robust theoretical incentives to test the doctrine in upcoming litigation.
Background Context and the Legal Framework of Section 287
To understand the mechanics of this emerging debate, it is necessary to examine the statutory foundation of patent marking. Under 35 U.S.C. § 287(a), a patentee, along with any persons making, offering for sale, or selling within the United States any patented article for or under them, is required to give notice to the public that the article is patented. This notice is typically achieved by fixing the word patent or the abbreviation pat. along with the patent number on the physical product or its packaging.
The penalty for failing to comply with this statutory mandate is severe: in the event of a failure to mark, no damages may be recovered by the patentee in any subsequent action for infringement, except upon proof that the infringer was formally notified of the infringement and continued to infringe thereafter. Consequently, compliance with the marking statute acts as a strict prerequisite for collecting pre-notice damages, often representing millions of dollars in long-term corporate litigation exposure.
The phrase that forms the crux of the current debate is found within the opening clauses of Section 287, which applies the marking duty to patentees and persons making, offering for sale, or selling patented articles "for or under" them. Legal practitioners have long debated the precise boundaries of this phrase. While traditional licensees undoubtedly fall within the scope of persons operating "for or under" a patentee—a principle firmly cemented by the Federal Circuit in decisions such as Arctic Cat Inc. v. Bombardier Recreational Products Inc.—the status of entities operating under a bare covenant not to sue remains a distinct gray area.
Chronology of Judicial Precedent: From Exhaustion to Marking
To evaluate whether a covenant not to sue can evade the reach of Section 287, courts must navigate a complex body of jurisprudence surrounding the functional equivalence of licenses and covenants not to sue. Historically, patent litigators attempted to draw sharp distinctions between these two legal instruments depending on the context of the dispute.
In the 2004 case Jacobs v. Nintendo, a panel of the Federal Circuit drew a distinct line between a covenant not to sue and a formal license grant within a settlement agreement for implied-license purposes. The court reasoned that a license provision went significantly further by granting the manufacturer an affirmative right to engage in manufacturing and sales, whereas a covenant not to sue merely sufficed to free the manufacturer from the threat of its own liability. This distinction mattered heavily in Jacobs because the analysis depended on the subjective intent of the contracting parties regarding downstream customers.
However, the legal ground shifted dramatically a few years later with the Federal Circuit’s 2009 decision in TransCore v. Electronic Transaction Consultants Corp. Guided by the United States Supreme Court’s landmark ruling in Quanta Computer, Inc. v. LG Electronics, Inc.—which established that the parties’ intent regarding downstream rights is irrelevant to the doctrine of patent exhaustion—TransCore put the formalistic distinction to rest in the exhaustion context. The court held that the real question is not whether an agreement is framed in terms of a covenant not to sue or a license, emphasizing that such a difference is merely one of form rather than substance, as both are properly viewed as authorizations.
This judicial perspective is rooted in the fundamental nature of the patent grant itself. Under United States patent law, a patent does not grant the patentee an affirmative right to practice the invention; rather, it confers solely the right to exclude others from practicing it. Consequently, a patentee cannot convey an absolute right to make, use, or sell an invention, because even the patentee does not possess such an affirmative statutory right. As the Supreme Court observed nearly a century ago in De Forest Radio Telephone & Telegraph Co. v. United States, a license passes no interest in the monopoly and is properly described as a mere waiver of the right to sue by the patentee.
Despite this clarity in the realm of patent exhaustion and affirmative rights, the distinction has never been squarely tested or resolved by the appellate courts within the specific framework of the patent marking statute.
The Patentees’ Argument: Textual and Policy Distinctions
Seizing upon the open questions left in the wake of VDPP v. Volkswagen, enterprising patent holders are formulating strategic arguments to differentiate covenants not to sue from licenses under Section 287. Under this emerging playbook, a patent holder might structure future settlement agreements purely as covenants—explicitly promising not to sue for the making, using, or selling of products under specified patents—while expressly disclaiming any grant of a license or affirmative authorization.
Proponents of this structural workaround rely on two primary lines of reasoning: a textual argument and a policy argument.
Textual Interpretation and the "For or Under" Standard
The textual argument hinges on the exact wording of Section 287, which restricts damages for lack of marking by persons acting "for or under" the patentee. Under this theory, while a licensee is undeniably acting under the authority of the patentee, a party operating under a bare covenant not to sue is not acting "for or under" anyone. Instead, a pure covenant not to sue does not affirmatively authorize the recipient to undertake any activity; it merely removes the looming threat of litigation.
The covenantee operates under its own inherent commercial authority, simply enjoying a legally protected zone free from judicial interference. Consequently, products manufactured and sold by a covenantee would not legally constitute "patented articles" sold "for or under" the patentee, meaning the statutory marking obligation would fail to attach. This interpretation suggests that the phrase "for or under" implies an agency-like or subordinate commercial relationship—someone acting on the patentee’s behalf or with direct authorization—which a clean covenant not to sue deliberately avoids creating.
Policy Rationales and Public Notice
From a policy perspective, patent holders argue that the foundational purpose of Section 287 is to provide constructive notice to the general public that a given article is protected by intellectual property rights, thereby preventing innocent infringement. If a covenantee operates independently of the patentee without a formal licensing relationship, the traditional public-notice rationale weakens. Under this view, the patentee exerts no meaningful operational control over the covenantee’s commercial products and maintains no collaborative relationship that would justify imposing an upstream marking obligation on the covenantee’s independent manufacturing activities.
Counter-Analysis and Broader Implications
Despite the cleverness of these textual and policy distinctions, legal analysts suggest that courts are unlikely to embrace them. The prevailing judicial consensus views the distinction between a license and a covenant not to sue as a superficial variance in drafting rather than a substantive divergence in legal effect.
Notably, in TransCore, the settlement agreement under scrutiny explicitly disclaimed any express or implied license, yet the Federal Circuit ruled that the disclaimer failed to alter the legal outcome. Furthermore, the policy arguments advanced by patentees face an uphill battle following VDPP v. Volkswagen. In that ruling, the panel underscored that excusing licensees from marking requirements would fundamentally frustrate the core purposes of Section 287 by allowing unmarked products—which the patentee implicitly acknowledges may infringe—to flood the commercial marketplace without public warning.
For corporate legal departments and intellectual property strategists, the implications of this ongoing evolution are profound. Patent holders structuring settlement portfolios are strongly advised not to rely on semantic labels. Simply designating an agreement as a covenant not to sue rather than a formal license provides a false sense of security and will likely fail to shield the patentee from the forfeiture of pre-notice damages if marking compliance is ignored.
Conversely, accused infringers and defense counsel now possess an expanded roadmap for discovery and defense. By carefully scrutinizing a patent holder’s historical settlement agreements, litigation teams can uncover whether past disputes were resolved through carefully crafted covenants not to sue. If courts ultimately treat these instruments as functional equivalents to licenses, any failure by the covenantee to mark products could trigger a robust marking defense, effectively wiping out substantial pre-litigation damage claims that the patent holder assumed it had safely engineered around. As this issue percolates through the lower courts in the coming years, the viability of settlement nomenclature will remain one of the most closely watched battlegrounds in American patent law.
