Federal Circuit Finds Reservation of Exclusive Right to Enforce Field of Use In Particular Area Does Not Confer Right to Sue Without Patent Owner

In Int’l Gamco, Inc. v. Multimedia Games, Inc., 504 F3d 1273; 84 USPQ2d 2017 (Fed. Cir. 2007), International Gamco, Inc. (“Gamco”) was the owner of U.S. Patent No. 5,324,035 (the ’035 patent) which relates to a gaming system network.   Gamco assigned the ’035 patent to International Game Technology (“IGT”), but reserved sublicensing and enforcement rights in the New York State Lottery Market.   In a first attempt to enforce this provision, Gamco sued Multimedia, who runs the New York State Lottery forNew York, for infringement of the ’035 patent.  The District Court for the Northern District of California dismissed the suit for lack of subject matter jurisdiction since Gamco’s reservation was not an exclusive license permitting Gamco to sue without the patent owner, IGT.  In response, Gamco and IGT executed a second license in which IGT affirmatively assigned Gamco “the exclusive right and license, within the Territory, to make, use, sell, and offer to sell, with the right to sublicense others to make, use, sell, and offer to sell game system networks covered by the ’035 Patent,” where the term Territory was limited to “the lawful operation of lottery games authorized by the New York State Lottery in the state of New York.” Gamco then sued Multimedia in District Court for infringement of the 035 patent.  When Multimedia again moved to dismiss for lack of subject matter jurisdiction, the District Court denied the motion since the exclusive license conferred all substantive rights in a blended enterprise license which conferred exclusivity for a particular field of use within a particular geographic area.  However, the District Court recognized that this was a case of first impression, and therefore granted certiorari to the Federal Circuit on the following issue:

whether an exclusive patent license, with exclusive right of enforcement, restricted to the activities of a specific enterprise within a specific geographical territory, is sufficient to confer standing on the exclusive licensee to bring a patent infringement action in its own name only” under 28 U.S.C. § 1292(b).  Continue reading

Federal Circuit Finds That Licensee Not Granted Sufficient Rights to Sue despite Right to Sue Clause

In Propat Intern. Corp. v. Rpost, Inc., 473 F.3d 1187, 81 U.S.P.Q.2d 1350 (Fed. Cir. 2007), the inventors of U.S. Patent No. 6,182,219 had assigned the patent to Authenticational Technologies LTD (hereinafter “Authentix”).  In May 2002, Authentix entered into an agreement with Propat, allowing Propat to license the patent to third parties, to enforce the license agreement, and to sue infringers.  In return, Propat was given a percentage of licensing royalties and a percentage of any judgment or settlement.  However, the license also placed certain restrictions on the licensee’s right to sue without consultation, and was not allowed to assign its patent rights without consent.  Moreover, Propat was required to use its best efforts to develop licenses for the technology, the royalties for which Authenticational received a share.

Propat International Corporation sued RPost, Inc in the United States District Court for the Central District of California, charging RPost with patent infringement.  The District Court held that Propat was not the owner of the patent and thus did not have standing to sue.  The District Court also held that because Propat had no proprietary interest in the patent, Propat lacked standing to sue infringers even with the patent owner, Authentix, joined as a party-plaintiff.  After the District Court dismissed the case, RPost moved for attorney’s fees and costs, which were denied.  Both parties appealed.

On appeal, the Federal Circuit applied the rule that, to sue in its own name, a party must have ownership or all substantial rights in the patent.  In contrast, a bare licensee with no ownership interest in the patent has no right to participate in an infringement action at the outset such that the bare licensee cannot add the patent owner to the suit to correct the lack of standing.  The rule is based upon 35 U.S.C. §281, which provides that “patentee shall have remedy by civil action for infringement of his patent.”  In 35 U.S.C. § 100, the word “patentee” includes both the original patent owner, as well as “the successors in title to the patentee.”  In combination, only the patentee can originally bring suit under 35 U.S.C. §281.

In defining “successors in title to the patentee,” even where the patentee does not transfer formal legal title, the patentee may effect a transfer of ownership for standing purposes (and the right to sue for infringement) if it conveys “all substantial rights” in the patent to the transferee.  In that event, the transferee is treated as the patentee and has standing to sue in its own name.  The patentee is not required to join in such a suit; the transferee may sue alone.  As such, for Propat to have standing to sue alone and to have initially brought the suit without Authentix, Propat would have to have to be the owner, assignee, or have “all substantial rights” in the patent. 

In view of the rule, the Federal Circuit reviewed the agreement between Propat and Authentix to determine if the agreement transferred all substantial rights to Propat.  According to the Federal Circuit, the Agreement gave Propat the right to license the patent to third parties, to enforce the license agreement, and to sue infringers, all of which are factors in favor of showing that all substantial rights had been conferred.  However, there were several factors in the Agreement which showed that Authentix retained enough control over the patent that all substantial rights had not truly been conferred. 

Specifically, in the Agreement, Propat was given a percentage of licensing royalties and a percentage of any judgment or settlement.  The agreement did not explicitly give Propat a license to practice the patent, and Propat was not an exclusive licensee.  The Federal Circuit specifically noted that the Agreement allowed Authentix to retain an equity interest in the proceeds of licensing and litigation activities, a right to notice of licensing and litigation decisions and the right to veto such decisions, and the unrestricted power to bar Propat from transferring its interest in the patent to a third party.  Finally, Propat was required under the Agreement to “use reasonable efforts consistent with prudent business practices” in its licensing and enforcement efforts, and Authentix received a substantial percentage of these efforts, which is a provision that is more consistent with the status of an agent than a co-owner.  On balance, the Federal Circuit found that the rights allocated to Propat under the Agreement made Propat a mere agent, and are not sufficiently substantial to make Propat in effect the assignee of the patent due to the rights retained by Authentix.

The Federal Circuit then reviewed the right to sue clause of the Agreement, and noted that the mere granting of a right to sue “unaccompanied by the transfer of other incidents of ownership, does not constitute an assignment of the patent rights that entitles the transferee to sue in its own name. See Indep. Wireless Tele. Co. v. Radio Corp. of Am., 269 U.S. 459, 474-75 (1926); Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24, 35-36 (1923); Textile Prods., Inc. v. Mead Corp., 134 F.3d 1481, 1485 (Fed. Cir. 1998); Ortho Pharm. Corp. v. Genetics Inst., Inc., 52 F.3d 1026, 1034 (Fed. Cir. 1995).”  Therefore, the Federal Circuit affirmed the District Court in dismissing the suit for lack of standing on the grounds found the 2002 Agreement between Propat and Authentix did not transfer all substantial rights in the patent, but instead made Propat a bare licensee.  

The Federal Circuit further noted that, as a bare licensee, Propat did not have a sufficient ownership interest to be involved in the suit even where Authentix was joined in the suit.  Specifically, while an exclusive licensee has a sufficient interest in the patent to have standing (even if the patent owner is a necessary party to the litigation), Propat was not an exclusive licensee under the terms of the Agreement.  By contrast to the ownership interest of the exclusive licensee, a bare licensee lacks standing to sue third parties for infringement of the patent, this lack of standing is not curable by joining the patentee as a party since the bare licensee cannot be involved as a plaintiff in the suit.   The Federal Circuit thus agreed with the District Court that Propat’s rights created by the May 2002 agreement did not accord it rights in the patent sufficient to give it standing to sue, even with Authentix named as a co-plaintiff.

Federal Circuit finds Patent Owner Retains Standing to Enforce Patent After Exclusive License That Does Not Transfer All Substantial Ownership Rights

In Aspex Eyewear, Inc. v. Miracle Optics, Inc., Contour and Aspex sued Miracle for infringement of U.S. Patent No. 6,109,747 (hereinafter referred to as the ’747 patent).  The ’747 patent was originally assigned by the inventor to Contour. After this assignment, Contour and nonparty Chic Optic, Inc. executed an agreement that gave Chic Optic, Inc. certain rights under the ’747 patent, including exclusive right to make, use and sell the product in the United States, the first right to commence legal action against third parties for infringement and virtually unlimited right to sublicense all of its rights to third parties. Under the agreement, Contour retained the right to commence legal action against third parties for infringement if Chic refused to do so, and the agreement contained a clause providing an expiration date for the agreement, a single option to extend, and a second expiration date if the option to extend was exercised. The expiration date was well before the expiration date of the patent. Chic sublicensed all of its rights to the patent to Aspex, Inc. This sublicense was not entered into until after Contour and Aspex had sued Miracle for infringement. 

The U.S. District Court for the Central District of California dismissed the suit on the grounds that neither Contour nor Aspex had standing to sue because neither possessed the “rights of the patentee” at the time that the original complaint was filed.

The Federal Circuit held that Contour had standing to sue because its agreement with Chic did not transfer all substantial rights to the ’747 patent. The Court found that the most important factor was the provision limiting the term of the agreement with Chic. Because of this provision, the Court found that Chic was an exclusive licensee and not an assignee. The Court reasoned that if Chic were considered to be the assignee of all rights under the patent, the risk of multiple lawsuits would increase, since Chic could assert the patent against an accused infringer during the term of the agreement and then, when Contour regained its rights after the termination of the agreement, Contour could bring an infringement action against the same infringer. The Court vacated the District Court decision that Contour lacked standing to sue and remanded the case to the District Court to determine whether Chic was a necessary party that should have been joined. 

A copy of the case can be found at Aspex Eyewear, Inc. v. Miracle Optics, Inc., 434 F.3d 1336; 77 U.S.P.Q.2D 1456 (Fed. Cir. 2006).