Mars, Inc. v. Coin Acceptors, Inc., first blogged here, demonstrated what can go wrong with ownership of patents within a corporate enterprise. As a refresher, in Mars the defendant, “Coinco,” successfully attacked the chain of title of the patents in suit. Mars had transferred ownership of the patents between family members during the lawsuit, a move that Coinco used to successfully challenge standing and limit Mars to reasonable royalty damages rather than lost profits. Mars subsequently had to defend itself agains a similar challenge in another suit, blogged here and here.
Plaintiff Novartis in Novartis Pharmeceuticals Corp. v. Teva Pharmeceuticals USA, Inc. is having similar problems. The chain of title was this:
* Pre-issue: Inventors assign to Beecham Group PLC
* August 30, 2000: Novartis Pharma, AG (NPAG) and Novartis Pharmeceuticals Corp. (NPC) purchased assets, which included the patent in suit, from SmithKline Beecham PLC, SmithKline Beecham Corp. and SmithKline Beecham (Cork) Limited (SKB) in a document entitled “Asset Sale Agreement”
* December 20, 2000: SKB assigned the patent to Novartis International Pharmeceutical Ltd (NIP)
The identity of the original assignor (whether it was Beecham Group PLC or SKB) was not an issue, but the ownership within the Novartis family was. All three of the Novartis companies were plaintiffs: NIP is a holding company (but perhaps a manufacturing company), NPAG is a manufacturer, and NPC is a distributor. Teva moved to have NPAG and NPC dismissed from the suit for lack of Article III standing since they weren’t owners of the patent. The benefit to Teva would be the remedies angle; with the operating companies out of the picture both injunctive relief and lost profits would be off the table.
The Novartis companies first argued that the “Asset Sale Agreement” was the grant of an exclusive license to NPAG and NPC. The court didn’t buy it; it would have been an exclusive license from SKB, not NIP. The license would have also been undone by the subsequent assignment of the “entire right, title and interest” from SKB to NIP. Alternatively, NIP would have taken ownership subject to the undefined licenses. Thus, there was at least a question of fact on the exclusive license theory.
Next the Novartis parties claimed NPAG and NPC had an implied exclusive license from NIP based on their behavior. But the court didn’t have sufficient evidence to decide whether NPAG and NPC were exclusive licensees or bare licensees, so the the issue would remain to be tried to the fact finder.
The court also offered this insight on why it wasn’t going to dismiss NPAG and NPC:
|At the same time, if each entity holding an interest in the patent is a wholly owned subsidiary of the parent corporation, resolution of this issue may not be of immediate need. “Another policy consideration is to prevent a party with lesser rights from bringing a lawsuit that may put the licensed patent at risk of being held invalid or unenforceable in an action that did not involve the patentee[,]” or by extension, the parties with a right to relief under the patent. Therefore, if each entity controls a divided, but undefined interest in the patent, policy favoring the prevention of multiple lawsuits and inconsistent judgments disfavors dismissal of NPC and NPAG at this time.
Teva also tried to get an early take from the court on the remedies question, but no luck there either: “the Court will not speculate as to the scope of remedies available in this matter until the foregoing issues of fact have been resolved.”
Teva’s Coinco strategy isn’t dead, but the issues remain to be tried to the factfinder. But it’s a good strategy if it works, and I anticipate a lot of close examination of corporate family ownership in the future.
Novartis Pharm. Corp. v. Teva Pharm. USA, Inc., No. 05-cv-1887, 2009 WL 3447232 (D.N.J. Oct. 21, 2009).
© 2009 Pamela Chestek