• Very Helpful Federal Circuit Explication of Standing Analysis

    by  • May 19, 2010 • patent

    Lawsuits about standing in patent cases are a dime a dozen: you can find some here. But this case has some really nice summary if you need to get a quick take on the legal standard. First, here are the possible standing iterations:

    Under Aspex Eyewear, a patent may not have multiple separate owners for purposes of determining standing to sue. Either the licensor did not transfer “all substantial rights” to the exclusive licensee, in which case the licensor remains the owner of the patent and retains the right to sue for infringement, or the licensor did transfer “all substantial rights” to the exclusive licensee, in which case the licensee becomes the owner of the patent for standing purposes and gains the right to sue on its own. In either case, the question is whether the license agreement transferred sufficient rights to the exclusive licensee to make the licensee the owner of the patents in question. If so, the licensee may sue but the licensor may not. If not, the licensor may sue, but the licensee alone may not. When there is an exclusive license agreement, as opposed to a nonexclusive license agreement, but the exclusive license does not transfer enough rights to make the licensee the patent owner, either the licensee or the licensor may sue, but both of them generally must be joined as parties to the litigation.[*]

    Although patent rights can be divided up many different ways between a licensee and owner, the court has to decide which one has the bigger bundle to decide who the owner is:

    A patent “is, in effect, a bundle of rights which may be divided and assigned, or retained in whole or part.” Vaupel Textilmaschinen, 944 F.2d at 875. Thus, although all the various rights available under the patent are initially held by the named inventor or inventors, they may, as a result of licensing agreements and assignments, become separated and be held by multiple individuals. When a sufficiently large portion of this bundle of rights is held by one individual, we refer to that individual as the owner of the patent, and that individual is permitted to sue for infringement in his own name. When a plaintiff lacking a sufficiently large portion of rights brings suit, that plaintiff does not have standing to sue on his own, and the suit must be dismissed, or additional holders of rights under the patent must be joined as parties to the suit, as appropriate given the plaintiff’s status as either an exclusive or a nonexclusive licensee.

    And the court helpfully pulled together a list the rights it has weighed before:

    Of course, [1] transfer of the exclusive right to make, use, and sell products or services under the patent is vitally important to an assignment. We have also examined [2] the scope of the licensee’s right to sublicense, [3] the nature of license provisions regarding the reversion of rights to the licensor following breaches of the license agreement, [4] the right of the licensor to receive a portion of the recovery in infringement suits brought by the licensee, [5] the duration of the license rights granted to the licensee, [6] the ability of the licensor to supervise and control the licensee’s activities, [7] the obligation of the licensor to continue paying patent maintenance fees, and [8] the nature of any limits on the licensee’s right to assign its interests in the patent. Frequently, though, [9] the nature and scope of the exclusive licensee’s purported right to bring suit, together with the nature and scope of any right to sue purportedly retained by the licensor, is the most important consideration. Where the licensor retains a right to sue accused infringers, that right often precludes a finding that all substantial rights were transferred to the licensee. . . . Under the prior decisions of this court, the nature and scope of the licensor’s retained right to sue accused infringers is the most important factor in determining whether an exclusive license transfers sufficient rights to render the licensee the owner of the patent.

    Notably, while the retaining the right to sue looks like it can be pretty dispositive, watch out for this misstep when drafting it:

    [The right to sue] does not, however, preclude such a finding [that all substantial rights were transferred to the licensee] if the licensor’s right to sue is rendered illusory by the licensee’s ability to settle licensor-initiated litigation by granting royalty-free sublicenses to the accused infringers.

    The right to sue is not illusory, though, where the licensee may grant a license but the license has a pass-through royalty obligation.

    Here, throwing the sticks up in the air and seeing whether the bigger pile lands in front of the licensor or exclusive licensee, the Court of Appeals for the Federal Circuit reverses the district court and decides the licensor still has the bigger pile. Remanded.

    Alfred E. Mann Foundation for Scientific Research v Cochlear Corp., No. 2009-1447 (Fed. Cir. May 14, 2010).

    * Personally, I’m a little confused by this last sentence. If they both have to be parties, didn’t they both sue? I suspect what the court is saying is that if either brought suit without the other, the complaint doesn’t have to be dismissed and can instead be amended to add the missing party.

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