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Patent licensee’s fraud claim against licensor is defeated by contract’s disclaimer of reliance: 8th Circuit

The Mayo Foundation granted a license to a startup company under a patent application that Mayo had filed for certain nano tech­nol­o­gy. See OmegaGenesis Corp. v. Mayo Foundation for Medical Edu­ca­tion and Research, No. 15-3346 (8th Cir. Mar. 20, 2017) (affirming dismissal on the pleadings for failure to state a claim upon which relief can be granted).

In the license agreement, the startup company “warranted that it had ‘in­de­pen­dently evaluated the Patent Rights, Know-How, and Con­fi­den­tial Information . . . [and] is entering into this Agreement on the basis of its own evaluation and not in reliance o[n] any rep­re­sen­ta­tion by Mayo . . . .'”  (Emphasis ad­ded.) The license agree­ment also dis­claimed any im­plied war­ranties by Mayo about the pat­ent­a­bil­i­ty of the tech­nol­o­gy, among other things; the agreement stated that the licensed subject matter was being provided “as is,” “with all faults,” and “with all defects.” Id., slip op. at 9.

Things apparently didn’t go well for the startup company:  The patent ap­pli­c­a­tion died when (i) the patent examiner issued a non-final re­jec­tion of the pend­ing claims in the patent application, citing prior art, and (ii) the startup com­pa­ny (which was to take over prosecution of the patent application) failed to re­spond to the rejection within the six-month period prescribed by the patent statute.

The startup company then sued Mayo, alleging among other things that Mayo had engaged in fraud and misrepresentation. (The startup company had raised $500,000 in funding from investors; conceivably the lawsuit might have rep­re­sent­ed an attempt by the startup company to divert investor anger away from management and toward Mayo.)

The district court held, and the Eighth Circuit affirmed, that the start­up com­pa­ny’s fraud- and negligent-misrepresentation claims against Mayo were barred by the reliance disclaimer in the license agree­ment. This was because, under Minnesota law, act­ual and reasonable reliance on the alleged mis­re­pre­sen­ta­tions was both (i) a required element of both claims, and (ii) negated by the re­li­ance disclaimer quoted above.

Drafting lesson: This is yet another example of the successful use of reliance dis­claimers to immunize a contracting party from fraud claims.

(A reliance disclaimer will not always work, though; see the annotations to the Common Draft reliance disclaimer.)

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