How to Draft a Covenant Not to Sue
If someone has a claim against you and the two of you arrive at a settlement, you may want to draft a covenant not to sue to protect you from future lawsuits. Covenants not to sue also come up in the context of patent licensing. Since patent law technically provides a patent holder simply with the right to sue someone else who is infringing their patent, a patent license can be considered a type of covenant not to sue.
Organizing Your Document
Search for samples.By looking on the internet, you may be able to find sample agreements that would meet your needs. A number of legal providers also offer forms and templates that you can use – typically for a fee – to draft your covenant not to sue.
- In addition to covenants not to sue, you also should look at releases and see if you can find something in that category that would work for you.
- If your situation involves a patent or trademark, look at non-exclusive license agreements as well. These agreements often have a lot in common with covenants not to sue and typically are treated similarly by courts.
- In most cases, it typically is not necessary to have an extensive or complex contract. A simple paragraph stating that the signing party promises not to begin or maintain any lawsuit against the other party related to the claim typically is all that's required for the covenant to be legally binding.
- However, if you have a more complex situation, you may need additional clauses or terms to satisfy the conditions of the agreement. This is especially true if you're drafting a covenant to sue as part of a settlement agreement for a lawsuit already in progress.
Gather information.Documents related to your intellectual property or other interests, along with information about the other party's potential claims, will help you get a better idea of how to structure your covenant not to sue.
- If you're drafting your covenant not to sue as part of the settlement agreement of a lawsuit already in progress, that lawsuit should be mentioned specifically using the case number and title found in the caption of related court documents.
- For covenants not to sue related to intellectual property interests, you will need the title and patent numbers for a patent, or the registration number for a trademark.
- A covenant not to sue related to a personal injury claim should include all the pertinent facts, including the date of the incident that gave rise to the claim.
Format your document.A legally valid covenant not to sue typically is organized in a traditional contract format, with an outline of the terms in numbered paragraphs. However, the level of organization in your document typically will depend on how long and detailed it is.
- If you're drafting a covenant not to sue in a situation where the party with the claim has not yet filed a lawsuit, you often can get away with a brief paragraph describing the claim and its context coupled with a promise by the person signing the document not to file a lawsuit related to that claim.
- A covenant not to sue addressing patent or trademark rights must include additional information to satisfy the requirements of federal law. These are the same as requirements for a valid license, which is why courts treat licenses and covenants not to sue virtually the same in the intellectual property context.
- Keep in mind that a covenant not to sue is a document that will protect you from a lawsuit. Its terms should be clear and easily understandable to both parties, and it should cover all aspects of the claim at issue.
Identify the parties.At the beginning of your agreement, you must identify yourself and the other party to your agreement by name, including legal business names if appropriate. Typically you also want to include a street address for each party.
- For simpler covenants not to sue, you can use the pronouns "I" or "we" to refer to the party making and signing the covenant. Their name and signature on the document will serve to define those pronouns.
- Pronouns generally aren't recommended if your covenant will be longer than a page. Write longer agreements in third person, identifying both parties and providing shortened names to be used in the rest of the document.
- For individuals, include the address of their place of residence. Business entities should use the address of their headquarters or principal place of business.
Set forth the purpose of the agreement.Longer, more detailed agreements typically include a number of clauses, often known as "whereas" clauses in legal jargon because they begin with that word, that explain why the parties have created this agreement.
- These clauses are particularly common in covenants not to sue that are associated with settlement agreements to resolve a lawsuit already in progress.
- Make factual statements, and carefully outline the events that led to the signing of the covenant not to sue.
- Keep in mind that these clauses aren't typically considered legally operable or enforceable, so avoid including any statements about the signing party agreeing not to sue. Save that statement for elsewhere in the document.
- Whereas clauses should be used exclusively for background information that you believe is necessary to understand the agreement itself and the motivation of the party signing the covenant.
Setting the Terms
Consider including a release.While a covenant not to sue is a promise from one party not to sue the other party based on a particular claim, that claim is still preserved. A release, on the other hand, destroys the claim completely.
- When a release is included, the signing party not only says that they won't sue you for whatever claim they have, but that they are releasing you from any liability whatsoever for any injuries or losses they incurred as a result of that incident.
- A release typically covers not only you but also your insurance company or any employees acting on your behalf. Without it, the person could still go after someone else for their injuries or losses even though they agreed not to sue you.
- For example, if you get a covenant not to sue from someone after an auto accident, they still could turn around and sue your insurance company for any injuries they suffered or the cost of damages to their car.
- If that happened, your insurance company could then turn around and sue you – since the insurance company never signed a covenant not to sue. You can avoid this mess by including a release in your covenant not to sue if there's any risk that the person could sue someone else.
- A release only applies in some situations. If you're drafting a covenant not to sue regarding the use of intellectual property, for example, a release typically wouldn't be relevant.
Specify the claims to which the covenant applies.Typically the claim or claims covered by the covenant not to sue must be listed with reasonable specificity – you'll have a hard time getting a court to enforce an agreement in which the other party has agreed not to sue you for anything and everything.
- Identifying the claim is relatively simple if you're drafting a covenant not to sue in connection with a settlement agreement to resolve a lawsuit – you can identify the claims for which the person originally sued.
- The covenant not to sue typically includes any other claims the person might have arising from the same incident or transaction. However, it may not include claims that could potentially come up in the future.
- A covenant not to sue that does not adequately specify the claim to which it applies may be considered overly vague by a court, which would make it void. A person cannot promise something if they don't know what they're promising.
Outline the consideration provided.Like any contract, a covenant not to sue must be supported by valid consideration. Typically this means you pay the other party a sum of money in exchange for their promise not to sue you.
- If you're drafting a covenant not to sue as part of a settlement agreement, you'll want to specify what portion of the settlement proceeds is allocated as consideration for the covenant not to sue.
- If several claims are included in the covenant, you may want to identify the specific portions of the total sum that apply to each claim.
Address revocation or expiration of the covenant.Depending on the circumstances surrounding the agreement, you may want it to expire after a period of time, or allow either party to revoke the agreement with sufficient notice.
- Generally, the covenant can expire on the same date the statute of limitations for the claim would run out. After that date, the person can't sue you anyway, so the covenant would be moot.
- For covenants not to sue that relate to a patent, the covenant should expire when the patent expires. The patent holder has no interest to protect after that point.
- If you include a revocation clause, it should hinge on a specific occurrence and require written notice to the other party – typically at least a week's notice before the revocation takes effect.
Finalizing Your Document
Include any necessary miscellaneous provisions.If you've drafted a relatively brief covenant not to sue, you may not want or need to include a lot of miscellaneous provisions – also known as "boilerplate" because they typically appear in any contract.
- However, lengthier covenants – particularly those related to the licensing of intellectual property or created in conjunction with a larger settlement agreement – typically include standard boilerplate provisions that you find in other contracts.
- These clauses assert that the person signing the agreement has read and understands it, and may even note that they have been given the opportunity to consult legal counsel before signing it.
- Other boilerplate addresses the choice of law that governs the covenant, and where a lawsuit may be brought in the event the covenant is broken.
Read and review the document.Once you've drafted your covenant not to sue, provide a copy of the draft to the other party and give them plenty of time to read over it and consult an attorney if they want to do so before they sign.
- The other party should understand that in signing the covenant, they are giving up the right to sue you in the future on the claims covered by the covenant. This is a potentially valuable right and should not be taken lightly.
- If the other party consults an attorney, that attorney may have changes they want made to the covenant before it is signed. Make sure you understand the effect of those changes before you make them on the document.
- Don't pressure or threaten the person if they don't sign it right away. A contract or covenant signed under duress won't be enforceable in a court of law.
Sign the document.Your covenant not to sue is not legally enforceable unless the person making the covenant has signed it. To provide yourself with additional security, you may want to have the agreement signed in front of a notary public.
- Once the document is signed, keep the original and make a copy of it for the other party. You may want to make an additional copy for yourself so you can keep the original in a safe place.
- If the covenant not to sue involves the use of intellectual property, you may need to file a copy with the U.S. Patent and Trademark Office (USPTO). Visit the USPTO's website to find out what types of documents must be recorded, where they must be sent, and the fees involved.
- In some cases, a covenant not to sue created in conjunction with a settlement agreement must be approved by the judge who was assigned the lawsuit.
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