35 U.S.C. - Written Description

Licensee's rights: standing to sue

The Medimmune v. Genentech appeal asks the court to address whether a licensee may sue the licensor to challenge the validity of the licensed patent. While the ultimate outcome of the dispute is unknown, we do know a few things about other licensee’s rights. For example, when can a licensee sue infringers of the licensor’s patents?

An exclusive licensee with “all substantial rights”

Tthe Patent Act confers standing to sue for infringement. Intellectual Property Development, Inc. v. TCI Cablevision, 248 F.3d 1333, 1345 (Fed. Cir, 2001). A patent confers the “right to exclude others from making, using, offering for sale, or selling the invention.” 35 U.S.C. §154(a)(1) (2004). The Patent Act provides the patentee with the sole “remedy by civil action for infringement of his patent.” 35 USC §281 (2004). A “patentee” is “not only the patentee to whom the patent was issued but also the successors in title to the patentee.” 35 USC §281 (2004). Thus, courts have generally required “that a suit for infringement ordinarily be brought by a party holding legal title to the patent.” Abbott Laboratories v. Diamedix, 47 F.3d 1128, 1130 (Fed. Cir., 1995); Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1578-9 (Fed. Cir. 1991).

Courts have interpreted the statute to preclude nonexclusive licensee from suing for infringement. Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24 (1923). Crown Die held that “the injury inflicted by an act of infringement falls upon the individual who owns the monopoly at the date of infringement. Id. Since a nonexclusive licensee receives only a covenant by the patent owner not to sue, a nonexclusive licensee suffers no legal injury from infringement. Intellectual Property Development, 248 F.3d at 1345. This reasoning, though, does not necessarily apply to exclusive licensees under standing doctrine.

An exclusive licensee with “all substantial rights” has standing to sue in their own name. Courts have held that a grant of “all substantial rights in a patent amounts to an assignment—that is, a transfer of title in the patent—which confers constitutional standing on the assignee to sue another for patent infringement.” Intellectual Property Development, 248 F.3d at 1345; Waterman v. Mackenzie, 138 U.S. 252, 256 (1891). In this analysis, an exclusive licensee with “all substantial rights” is simply recognized as the patentee. There is a substantial amount of case law which addressing whether a particular exclusive license is in fact an assignment. Such a determination is outside the scope of this memo. However, where an exclusive licensee does not claim to be the patentee or assignee, it has “the burden to provide evidence endowing it with all substantial rights in the patent.” Fieldturf v. Fieldturf International, 357 F.3d 1266, 1268 (Fed. Cir., 2004). Particularly dispositive are reservations on the right to enforce the patents. Vaupel Textilmachinen KG v. Meccanica Euro Italia S.P.S., 944 F.2d 870, 875 (Fed. Cir. 1991).

A licensee with less than all substantial rights in a patent

Where an exclusive licensee has fewer than all substantial rights, courts must address the “threshold issue” of standing. The issue of standing is a question of law. The “doctrine of standing limits federal judicial power and has both constitutional and prudential components.” Evident Co. v. Church & Dwight C., 399 F.3d 1310, 1313 (Fed.Cir. Feb. 22, 2005)(quoting Media Techs. Licensing, LLC v. Upper Deck Co., 334 F.3d 1366, 1369 (Fed. Cir. 2001)). Standing is judged under the Supreme Court’s Lujan test. Constitutional standing requires “only that a plaintiff must have suffered an injury in fact, that there be a causal connection between the injury and a defendant’s conduct, and that the injury be redressable by a favorable court decision.” Id. In addition, when an exclusive licensee has constitutional standing, it may still be barred by prudential concerns.

An exclusive licensee with fewer than all substantial rights may have constitutional standing. “An exclusive licensee receives more substantial rights in a patent than a nonexclusive licensee, but receives fewer rights than an assignee of all substantial patent rights.” Id. To determine constitutional standing, the courts will apply Lujan test to an exclusive licensee. The first prong requires injury in fact. The second prong requires the causation be “fairly traceable” to the injury in fact. Id. Finally, Lujan requires that the injury be redressable.

The first prong is satisfied where an exclusive licensee has the right to exclude other from “making, using, and selling an invention.” In that case, the licensee is constitutionally “injured by any party that made, used, or sold” the invention. Intellectual Property Development, 248 F.3d at 1346; Evident, 399 F.3d at 1314. Second, there must be a “fairly traceable” casual connection between the conduct and the injury. In the case of infringement, the conduct is directly related to the injury and is sufficient to overcome the “fairly traceable” test. Id.

Finally, patent infringement is redressable through the courts by an award of damages. Id. Intellectual Property Development notes that the “court has awarded damages to exclusive licensees.” Id. Therefore, the injury is redressable by the court. Id. Under these circumstances, an exclusive licensee meets the constitutional standing requirements.

Nevertheless, an exclusive licensee with less than all substantial rights cannot usually bring a suit in their own name. That is, although “an exclusive licensee may have standing to participate in a patent infringement suit, in some cases it must still be joined in suit by the patent owner.” Prima Tek II v. A-Roo Co., 222 F.3d 1372, 1377 (Fed.Cir., 2000). This rule is a “judicially self-imposed” prudential limit. Independent Wireless, 269 U.S. at 468. The prudential limit thus denies standing to an exclusive licensee with fewer than all substantial rights unless the patent owner is joined as a plaintiff. “This principle hold true except in extraordinary circumstances, such as where the infringer is the patentee and cannot sue itself.” Id.

In Independent Wireless v. Radio Corp., the Supreme Court held “The presence of the owner of the patent as a party is indispensable not only to give jurisdiction under the patent laws but also, in most cases, to enable the alleged infringer to respond in one action al all claims of infringement for his act, and thus either to defeat all claims in the one action, or by satisfying one adverse decree to bar all subsequent actions.” 269 U.S. 459, 468 (1926).

Subsequently, the Federal Circuit has, as a general rule, adhered “to the principle that a patent owner should be joined, either voluntarily or involuntarily, in any patent infringement suit brought by an exclusive licensee having fewer than all substantial patent rights.” Prima Tek II, 222 F.3d at 1377; Abbott Labs, 47 F.3d at 1131; Evident, 399 F.3d at 1314; Fieldturf, 357 F.3d at 1268; Intellectual Property Development, 248 F.3d at 1348; Mentor H/S, 240 F.3d 1016; Ortho Pharmaceutical, 52 F.3d at 1030; Textile Productions, 134 F.3d at 1484. As this rule is “prudential rather than constitutional,” it is subject to exceptions. Id. The court has recognized two exceptions. The first exception is where the exclusive license grants “all substantial rights,” as noted earlier. The second is where the patentee is the alleged infringer. Absent these two situations, the patentee is an “indispensable party.”

Importantly, an exclusive licensee is not barred from enforcement simply by an unwilling or unavailable patent owner. A patent owner is “duty bound to become a party.” Independent Wireless, 269 U.S. at 472. A licensee “may make [the patent owner] a party defendant by process and he will be lined up by the court in the party character which he should assume.” Abbott Labs, 47 F.3d at 1131 (quoting Independent Wireless, 269 U.S. at 468). The court explained the patentee “holds the title to the patent in trust for [the exclusive] licensee, to the extent that he must allow the use of his name as plaintiff in any action brought at the instance of the licensee in law or in equity to obtain damages for the injury to his exclusive right by an infringer or to enjoin infringement of it.” Id. Even in the absence of an expressed provision, courts will imply an “obligation” on the “licensor to allow the use of his name” so that the licensee may enjoy “the monopoly which by personal contract the licensor has given.” Independent Wireless, 269 U.S. at 469.

Courts are aware of the inconvenient and “possibly embarrassing” results of an adjudication brought by an exclusive licensee. Independent Wireless, 269 U.S. at 469. As would be the case where litigation posed potential geographic or economic hardships, or where the ultimate disposition of the case held a patent invalid or unenforceable. These concerns address the policy of making the patentee an indispensable party since the licensee’s and patentee’s interests do not necessarily align. To a licensee, paying royalties while competing with even a negligible infringer is the worst of two worlds. In such a case, the invalidity of a patent may be better than the status quo. On the other hand, the patentee is interested in maintaining royalty payment, avoiding expensive litigation and maintaining even weak patent rights.

As such, courts are willing to entertain provisions that vary the rights of the parties to bring a suit. “Express covenants may, of course, regulate the duties between the licensor and licensee to implement the rights of the parties.” Ortho Pharmaceutical, 52 F.3d at 1034. Among the permitted provisions are those which outline whom may initiate an action. Intellectual Property Development, 248 F.3d at 1345 (upholding a provision that required the licensee obtain consent from licensor); Mentor H/S, Inc. v. Medical Device Alliance, 240 F.3d 1016, 1018 (Fed. Cir. 2001) (upholding provision that allowed licensee to sue only when patentee failed to take action); Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1251 (Fed. Cir.2000)(upholding an provision that allowed the patentee to sue, but finding it “illusory” in effect); Abbott Laboratories, 47 F.3d at 1132 (upholding a provision that granted the right to sue to exclusive licensee, but also maintained a right to bring suit in its own name); Vaupel Textilmachinen KG v. Meccanica Euro Italia S.P.S., 944 F.2d 870, 875 (Fed. Cir. 1991)(upholding a licensee’s right to sue conditioned upon notice only). In addition, courts looked at the right to initiate a suit to discern whether a party had “all substantial rights.” For example, where such a right is made conditional, the agreements are understood to confer something less than all substantial rights, and thus not an assignment.

posted by Mike @ 6:11 AM