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.)