As we all know, standing is difficult in patent cases. There are two types of “exclusive” licensees (in my view, making jurisprudence very confusing). First is the “virtual assignee” who has essentially all of the rights of the patent owner and can sue for infringement without having to join the patent owner. Second is an exclusive licensee who doesn’t have all the rights, for example, a licensee that is exclusive only for a particular field of use. In the latter case, the patent owner must also be joined as a plaintiff in the infringement suit. But there is one rare exception in this second category, which is that an exclusive licensee can sue the patent owner for the patent owner’s own breach of the licensee’s exclusivity.
Which is the subject matter of Duckweed, USA, Inc. v. Behrens. Duckweed alleged it was the exclusive licensee of Patent No. 7,750,494, titled “Systems and Vessels for Producing Hydrocarbons and/or Water, and Methods for Same” owned by defendant Rudolph Behrens. A document entitled “Resolution” said that Behrens was to contribute his expertise and the patented process to Duckweed and that “Duckweed USA will exclusively develop, market and license commercial synfuel feedstock facility(s), utilizing the ‘SF-1: Land-Based Synfuel Production System.’”
Duckweed began commercializing the patent, beginning construction on facilities in Winslow Township, New Jersey and Sparta, Georgia and was working on plans for a facility for Rutgers University in Cape May, New Jersey. By June 17, 2015, Duckweed had constructed a demonstration unit for Rutgers, needing only from Behrens some pump/nozzle assemblies and the “artificial intelligence” need to operate them. Two days later Behrens sent an email saying that he was “withdrawing from [Duckweed]” and “nullifying” the license. Behrens then claimed that a different entity he started, B.E.A.R. Oceanics, was the entity with the agreement with Rutgers. Duckweed sued Behrens, BEAR, and a bunch of other people. By the time we get to the motion to dismiss, everyone has defaulted except a co-owner of BEAR, Edward Abraham. The court sua sponte asked for briefing on Duckweed’s standing.
As noted at the top,
In addition to the patent owner, Federal Circuit case law provides that an exclusive licensee has standing to sue in its own name, without joining the patent holder where all substantial rights in the patent are transferred. In the case where a patent owner transfers all substantial rights, the transferee is treated as the patentee and has standing to sue in its own name. If, however, the transferee or licensee does not hold all substantial rights, it may sue third parties only as a co-plaintiff with the patentee.
At least one exception to that rule exists, however: an exclusive licensee that does not have all substantial rights does have standing to sue in his own name when necessary to prevent an absolute failure of justice, as where the patentee is the infringer, and cannot sue himself.
Determining whether a licensee is an exclusive licensee or a bare licensee is a question of ascertaining the intent of the parties to the license as manifested by the terms of their agreement and examining the substance of the grant. Because patent rights are rights to exclude others, a licensee is an exclusive licensee only if the patentee has promised, expressly or impliedly, that others shall be excluded from practicing the invention within the field covered by the license. Put another way, an exclusive license is a license to practice the invention accompanied by the patent owner’s promise that others shall be excluded from practicing it within the field of use wherein the licensee is given leave. Therefore, licensees under that patent are not exclusive licensees if a patentee-licensor is free to grant licenses to others.
(Many, many quotation marks, brackets, ellipses and citations omitted.)
Duckweed argued that it fit into the first category of exclusive licensee, the virtual assignee, with all substantial rights under the patent. The court summarily dismissed the argument. (“Behrens has retained a significant amount of interest in the 494 Patent and has clearly not relinquished all substantial rights under the Patent.”) However, the court agreed with Duckweed that it was an exclusive licensee whose licensor was the accused infringer and therefore Duckweed had standing:
Behrens gave Duckweed the exclusive right to license commercial synfuel feedstock facility(s) utilizing the SF-1:Land-Based Synfuel Production System. To qualify as an exclusive license, an agreement must clearly manifest the patentee’s promise to refrain from granting anyone else a license in the area of exclusivity. The Resolution between Behrens and Duckweed clearly manifests a promise by Behrens to do so. Not only does the Resolution clearly manifest Behrens’ promise to refrain from granting anyone else a license in the area of exclusivity, but it gives Duckweed itself the exclusive right to license commercial synfuel feedstock facility(s) utilizing the SF-1:Land-Based Synfuel Production System. As discussed, licensees under a patent are not exclusive licensees if a patentee-licensor is free to grant licenses to others. This is clearly not the case here as Duckweed is granted the exclusive right to grant licenses to others, not Behrens.
Not only did Duckweed receive the right to practice the invention within a given territory, but, significantly, it also received Behrens’ explicit promise that others shall be excluded from practicing the invention within that territory as well. Since Duckweed received an express promise of exclusivity under the patent, i.e., the right to exclude others from making, using, or selling the patented invention, it has received an exclusive license. It has received more than Behrens’ promise that it will not be sued for infringement, i.e., a “bare license.” Accordingly, we find that Duckweed has an exclusive license and its case falls under the exception allowing an exclusive licensee that does not have all substantial rights to have standing to sue in its own name when necessary to prevent an absolute failure of justice, as where the patentee is the infringer, and cannot sue himself. Consequently, Duckweed has standing to sue for patent infringement of the 494 Patent.
(Quotation marks and citations omitted.)
Duckweed, USA, Inc. v. Behrens, No. 15-5387 (E.D. Pa. March 30, 2016).
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