• Is It a Sublicense If It’s For All Licensed Rights Except One Day?

    by  • July 14, 2014 • patent • 0 Comments

    Those who draft patent licenses take note. MDS (Canada), Inc. v. Rad Source Technologies, Inc. is a state court opinion from the Supreme Court of Florida distinguishing an assignment of a patent license from a sublicense.

    MDS (Canada), now “Nordion,” was a licensee of technology from Rad Source. The license could not be assigned absent consent from Rad Source, although Nordion could sublicense the patents.

    Nordion wanted to get out of the business and assign the license agreement to Best Medical, but couldn’t get Rad Source to consent. So instead Nordion sublicensed the technology to Best for a term that was one day less than the term of the original license (which terminated on expiration of the last patent). Exactly all of the same rights were sublicensed. But, Nordion couldn’t delegate its responsibilities to Best, so they did some work-arounds of those. Nordion retained some kind of liability to Rad Source (exactly what wasn’t clear to the Supreme Court) so Best indemnified Nordion for it. Nordion also wasn’t obliged to pay Rad Source until Best had paid Nordion. Nordion sold everything to Best and conveyed this sublicense to Best so that when all was said and done, Nordion had no ability to operate a business using the licensed technology.

    The lawsuit was filed in the Southern District of Florida. After a bench trial, the appeal went to the 11th Circuit (if you’re interested, the 11th Circuit opinion explains why it had jurisdiction over the appeal rather than the Federal Circuit). The status of the agreement—assignment of a license or a sublicense—was a question of state law and the 11th Circuit decided that it was uncertain about the answer. It therefore certified a question to the Supreme Court of Florida, which as rephrased by the Supreme Court was:

    DOES FLORIDA RECOGNIZED A “BRIGHT-LINE” RULE TO DISTINGUISH AN ASSIGNMENT OF A LICENSE AGREEMENT FROM A SUBLICENSE?

    The “bright-line” is the difference between giving up all rights and duties without a reversion, or a grant of less than all rights and duties. Here, the agreement used the artifice of term-minus-a-day, used to for cases involving real property. Under real property law, quoting an opinion of the Arkansas Supreme Court

    “[t]he doctrine established in England is quite simple: If the instrument purports to transfer the lessee’s estate for the entire remainder of the term it is an assignment, regardless of the form or of the parties’ intention.” However, under this doctrine, “if the instrument purports to transfer the lessee’s estate for less than the entire term—even for a day or less—it is a sublease, regardless of its form or of the parties’ intention.”

    But the Florida Supreme Court concluded:

    For the reasons explained in this opinion, we conclude that under Florida law, there is no “bright-line rule” that distinguishes an assignment of a license agreement from a sublicense. Instead, this case-by-case determination requires courts to consider numerous factors, including the language of the license agreement and its subject matter, the substance of the interest that was actually transferred by the licensee, and whether the licensee retained any substantial rights in the license agreement. We therefore answer the rephrased certified question in the negative and return this case to the Eleventh Circuit to apply our legal holding to the facts of this case.

    And what case law would help in reaching that conclusion? “[C]ases construing patents, such as those relied on by the federal district court, are instructive in providing guiding principles for the type of interest at the heart of this case.”

    So back to the federal courts to weigh all the facts and decide what this was. The district court originally said assignment and the 11th Circuit agreed, albeit also certifying the question to the Florida Supreme Court. It doesn’t look good for Nordion.

    MDS (Canada), Inc. v. Rad Source Techs., Inc., No. SC13-1215 (Fla. July 10, 2014).

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    MDS (Canada), Inc. v. Rad Source Techs., Inc., No. 11-15145, 720 F.3d 833 (11th Cir. July 1, 2013).

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