Agreement Not to Sue: Resolve Claims Without Litigation

TL;DR: An agreement not to sue (also called a "covenant not to sue") is a contractual promise by one party not to initiate legal proceedings against the other party for specified claims. Unlike a release or waiver, it does not extinguish the underlying claim but bars the covenanting party from pursuing it in court. If the covenanting party files suit despite the covenant, the defendant's remedy is to raise it as a defense and potentially counterclaim for breach of the covenant. Key variables include the scope of covered claims, the duration, whether the covenant covers successors and assigns, and the remedies for breach.

What Is an Agreement Not to Sue?

An agreement not to sue is a contractual covenant in which one party (the covenanting party) promises not to bring or maintain a lawsuit against the other party (the protected party) with respect to defined claims. The critical distinction from a release is that the underlying claim survives. The covenanting party has agreed not to sue, but the right itself has not been extinguished.

This distinction matters in multi-party situations. If Party A releases Party B from a tort claim, and Parties B and C are joint tortfeasors, the release may also discharge Party C under the common law rule that a release of one joint tortfeasor releases all. An agreement not to sue Party B, by contrast, preserves Party A's claim against Party C because Party B's underlying liability was never extinguished, only rendered unenforceable against Party B.

Agreements not to sue appear in settlement agreements, patent licensing and cross-licensing arrangements, insurance coverage disputes, product liability settlements, and commercial disputes where the parties want to resolve specific claims without a full mutual release. They are particularly common in intellectual property: a patent holder may covenant not to sue a licensee for past infringement while preserving the right to sue for future infringement outside the license scope.

Related terms include "covenant not to sue," "litigation standstill agreement," "forbearance agreement," and "tolling agreement" (though a tolling agreement suspends the statute of limitations rather than barring suit). The distinction between a covenant not to sue and a release, while technical, has significant practical consequences.

Why It Matters

The agreement not to sue is a precision instrument for partial dispute resolution. It resolves specific claims between specific parties without the sweeping effect of a general release.

Multi-party disputes: In litigation involving multiple defendants, settling with one defendant through an agreement not to sue avoids the joint tortfeasor release problem. The settling plaintiff preserves claims against non-settling defendants while giving the settling defendant litigation peace.
IP licensing and cross-licensing: Patent cross-license agreements frequently use covenants not to sue rather than releases, allowing each party to maintain its patent portfolio (and the ability to enforce it against third parties) while providing litigation peace to the counterparty. Approximately 65% of patent cross-license agreements use covenant-not-to-sue structures (PatentLens, 2023).
Partial resolution: An agreement not to sue can cover past conduct while leaving future conduct actionable. A software company might covenant not to sue for past unlicensed use while preserving the right to sue for future infringement. A release would extinguish both.

Key Elements of a Well-Drafted Agreement Not to Sue

Precise scope of covered claims: Define exactly which claims are covered by the covenant. Specify the subject matter (patent infringement, breach of contract, tort claims), the time period (claims arising before the effective date, or all claims through a specified date), and the parties covered. Overbroad scope creates unintended consequences; overly narrow scope leaves gaps.
Covered parties: Identify whether the covenant protects only the named party or extends to its affiliates, subsidiaries, officers, directors, employees, agents, and successors. Patent covenants not to sue frequently extend to customers and end users of the protected party's products.
Duration: Specify whether the covenant is perpetual or limited in time. For past claims, perpetual covenants are standard. For ongoing relationships, the covenant may be coterminous with a license agreement, terminating if the license terminates.
Consideration: Like any contract, the covenant requires consideration. In settlement contexts, the consideration is typically a payment, a cross-covenant, or the dismissal of pending claims. In patent licensing, the consideration is the license fee or royalty. Courts will not enforce a gratuitous covenant not to sue.
Remedies for breach: Specify the consequences if the covenanting party files suit despite the covenant. Standard remedies include: the covenant operates as an affirmative defense to the lawsuit, the protected party may counterclaim for breach of the covenant, and the protected party may recover attorneys' fees and costs incurred in defending the barred action.
Preservation of rights: Expressly state which rights are not covered by the covenant. If the agreement resolves past patent infringement but not future infringement, say so explicitly. If the covenant covers breach of contract claims but not fraud claims, enumerate the exclusion.
Interaction with joint tortfeasors: In multi-party situations, confirm that the covenant does not release or discharge any claims against non-parties. This is the primary advantage of a covenant not to sue over a release, and it should be stated expressly to avoid judicial uncertainty.

Market Position & Benchmarks

Where Does Your Clause Fall?

Protected Party-Favorable: Broad scope covering all claims of any kind arising from the parties' relationship, extends to affiliates and successors, perpetual duration, includes covenant not to assist third parties in bringing claims, attorneys' fee shifting for breach, specific performance available as a remedy.
Market Standard: Scope limited to specified claims arising before the effective date, covers the named party and its controlled affiliates, perpetual for covered claims, mutual covenant (both parties covenant not to sue on the covered claims), breach entitles the protected party to injunctive relief and actual damages.
Covenanting Party-Favorable: Narrow scope limited to a single specified claim, covers only the named party (not affiliates or successors), terminates if the protected party materially breaches the underlying agreement, no extension to third-party claims, covenanting party retains the right to bring counterclaims in any proceeding initiated by the protected party.

Market Data

Approximately 65% of patent cross-license agreements use covenant-not-to-sue structures rather than releases, primarily to preserve each party's enforcement rights against third parties (PatentLens, 2023).
In multi-party tort settlements, approximately 70% of partial settlements use agreements not to sue (rather than releases) in jurisdictions that follow the common law joint tortfeasor release rule.
Covenants not to sue are upheld in approximately 95% of challenged cases, with the primary ground for invalidation being lack of consideration or ambiguous scope (Westlaw litigation data, 2023).
The average settlement payment associated with a covenant not to sue in patent disputes ranges from $500K to $5M for mid-market technology companies (RPX Research, 2024).
Approximately 80% of covenants not to sue in commercial settlements include mutual covenants (both parties covenant not to sue the other), up from approximately 60% a decade ago.

Sample Language by Position

Protected Party-Favorable: "Covenanting Party hereby covenants and agrees, on behalf of itself, its affiliates, successors, assigns, and any entity that it controls or that controls it, not to sue, initiate, or maintain any action, claim, or proceeding of any kind against the Protected Party, its affiliates, customers, and end users, arising from or relating to any matter, event, or transaction occurring on or before the Effective Date. Covenanting Party further agrees not to assist, finance, or encourage any third party in bringing such claims. Any breach of this covenant shall entitle the Protected Party to injunctive relief, recovery of all attorneys' fees and costs, and any other damages arising from the breach."

Market Standard: "Each Party covenants not to sue the other Party or its affiliates for any claim arising from the matters described in Exhibit A, to the extent such claims arose on or before the Effective Date. This covenant shall not extend to claims arising after the Effective Date or to claims not described in Exhibit A. This covenant is intended as a covenant not to sue and not as a release, and shall not discharge or affect the liability of any third party. The covenant shall be a complete defense to any action brought in violation of this Section."

Covenanting Party-Favorable: "Subject to the continued performance by the Protected Party of its obligations under Section [X], the Covenanting Party agrees not to initiate any legal proceeding against the Protected Party based solely on the Patent Claims identified in Exhibit B. This covenant shall terminate automatically if the Protected Party breaches Section [X] and fails to cure within thirty (30) days of written notice. This covenant does not extend to any affiliate, successor, or assign of the Protected Party not identified in this Agreement."

Example Clause Language

These examples show agreements not to sue in different contexts.

Patent Cross-License: "Each Party hereby covenants not to assert any Patent Claims against the other Party, its Subsidiaries, or its direct and indirect customers for the manufacture, use, sale, offer for sale, or importation of Licensed Products. This covenant shall remain in effect for the term of this Agreement and shall survive termination with respect to Licensed Products sold or delivered prior to the effective date of termination. This covenant is not a release and does not affect either Party's right to enforce its Patent Claims against any third party."

Multi-Party Tort Settlement: "Plaintiff covenants and agrees not to sue, commence, or prosecute any action, claim, or proceeding against Settling Defendant arising from or relating to the events described in the Complaint filed in [Case No.]. This covenant is not a release and shall not operate to discharge, diminish, or otherwise affect the liability of any Non-Settling Defendant. Settling Defendant may plead this covenant as a bar to any action brought by Plaintiff in violation of this Section and shall be entitled to recover its reasonable attorneys' fees incurred in connection with such defense."

Commercial Dispute Settlement: "In consideration of the Settlement Payment described in Section 2, Company A covenants not to sue Company B for any breach of contract, negligence, or other claim arising from the performance or non-performance of the Services Agreement dated [date] during the period from [start date] through the Effective Date. This covenant does not cover claims arising from: (a) Company B's obligations under the confidentiality provisions of the Services Agreement, which survive termination; (b) any intentional misconduct or fraud by Company B; or (c) any claims arising after the Effective Date."

Common Contract Types

Settlement agreements: Resolving pending or threatened litigation through a covenant not to sue rather than a release, particularly in multi-party disputes.
Patent license and cross-license agreements: Providing litigation peace for licensed activities while preserving enforcement rights against third parties.
Insurance coverage agreements: Resolving coverage disputes through a covenant not to sue for past claims while preserving rights for future claims under the policy.
Product liability settlements: Settling claims with individual plaintiffs without releasing other potential claimants or triggering joint tortfeasor release issues.
Technology transfer agreements: Covenanting not to sue for use of transferred technology within defined parameters while preserving claims for use outside the scope.
Non-assertion agreements: IP holders agreeing not to assert specific patents or copyrights against specific users for specific uses, common in standards-setting organizations.

Negotiation Playbook

Key Drafting Notes

Choose between a covenant not to sue and a release deliberately. The choice is not cosmetic. A release extinguishes the claim permanently. A covenant not to sue bars suit but preserves the claim. In single-party situations, a release is cleaner. In multi-party situations, a covenant not to sue is usually necessary to preserve claims against non-settling parties.
Define the scope with surgical precision. The most common drafting error is overbroad scope. A covenant that covers "any and all claims" is effectively a release, eliminating the key advantage of the covenant-not-to-sue structure. If the intent is to cover only specific claims, enumerate them.
Address the "have made" problem in patent covenants. If the protected party outsources manufacturing, does the covenant protect the contract manufacturer? If the protected party sells products, does it protect the customer? Patent covenants not to sue should extend to "making, having made, using, selling, offering for sale, and importing" to cover the full commercial chain.
Include an anti-assignment provision. If the covenanting party assigns its claims to a third party (or is acquired by a company with litigation-heavy practices), the covenant should bind successors and assigns. Without this, the covenant can be circumvented through corporate transactions.
Specify that the covenant is an affirmative defense. State expressly that the covenant may be raised as a complete defense to any action brought in violation of its terms. While this is the legal effect in most jurisdictions, stating it removes any argument that the covenant is merely a contractual obligation whose breach sounds only in damages.

Common Pitfalls

Using "covenant not to sue" when you mean "release." If the parties intend to fully and permanently extinguish all claims between them, a release is the correct instrument. Using a covenant not to sue when a release is intended creates unnecessary complexity and potential gaps.
Failing to address the joint tortfeasor issue in the agreement. If the covenant is used specifically to avoid releasing joint tortfeasors, state that intent expressly. Some jurisdictions treat a broadly worded covenant not to sue as equivalent to a release, defeating the purpose.
Omitting consideration for the covenant. A covenant not to sue without consideration is unenforceable in most jurisdictions. The consideration need not be monetary (a mutual covenant, a forbearance, or a dismissal of claims all qualify), but it must exist and be documented.
Not addressing the statute of limitations. A covenant not to sue does not toll the statute of limitations. If the covenant expires or is breached after the limitations period has run, the covenanting party's underlying claim may be time-barred regardless. If tolling is needed, use a separate tolling agreement.

Jurisdiction Notes

United States: The distinction between a release and a covenant not to sue is well-established in American jurisprudence, though its practical significance varies by state. In states that have adopted the Uniform Contribution Among Tortfeasors Act (UCATA), a release of one joint tortfeasor does not discharge others, reducing the advantage of a covenant not to sue in that specific context. However, other states (including common law jurisdictions without UCATA) maintain the traditional rule, making the covenant structure essential. Federal courts enforce covenants not to sue as contractual obligations and as affirmative defenses. In patent law, covenants not to sue can moot declaratory judgment jurisdiction (Medimmune v. Genentech, 2007, altered the standard, but broad covenants can still defeat standing).

United Kingdom: English law recognizes covenants not to sue as contractual obligations enforceable by way of injunction or damages. The distinction between a release (which is a discharge of the obligation) and a covenant not to sue (which is a promise not to enforce) is maintained in English law. In multi-party litigation, the Civil Liability (Contribution) Act 1978 allows courts to apportion liability among tortfeasors, and a settlement with one tortfeasor through a covenant not to sue does not automatically discharge others. English courts will enforce covenants not to sue as contractual terms, and breach gives rise to a counterclaim for damages and potentially an injunction.

Germany: German law distinguishes between a "Verzicht" (waiver or release, which extinguishes the claim) and a "pactum de non petendo" (agreement not to demand, which preserves the claim but bars its enforcement). The pactum de non petendo is recognized under German civil law (BGB) as a contractual defense (Einrede) that must be raised by the defendant. It does not extinguish the underlying claim and does not affect third-party liability. German courts enforce these agreements as contractual provisions, subject to the general requirements of contract formation and the prohibition on unconscionable terms under Section 138 BGB.

Related Clauses

Waiver Clause: A broader concept of voluntarily relinquishing a contractual right. An agreement not to sue is a specific type of forbearance that bars litigation without extinguishing the underlying claim.
Exculpatory Clause: Releases a party from liability for negligence. While both limit legal exposure, an exculpatory clause operates before harm occurs; an agreement not to sue typically addresses existing or potential claims.
Indemnification Clause: Shifts the economic burden of claims to the indemnifying party. An agreement not to sue bars the claim itself, while an indemnity addresses who pays for it.
Limitation of Liability: Caps damages rather than barring suit. A party who sues despite a limitation of liability clause can recover up to the cap; a party who sues despite a covenant not to sue faces dismissal.
Dispute Resolution Clause: Governs how disputes are resolved. An agreement not to sue removes certain claims from the dispute resolution process entirely.

This content is for informational purposes only and does not constitute legal advice. Market data represents general trends and may vary by industry, jurisdiction, and deal size. Consult qualified legal counsel for specific contract matters.