Property, intangible

a blog about ownership of intellectual property rights and its licensing

Security Interests and Patent Standing

Only assignees and some exclusive licensees have standing to bring a claim for patent infringement. In the category of “exclusive licensee,” there is some line drawing that goes on around the meaning of “exclusive.” Where an exclusive license is tantamount to an assignment, the exclusive licensee can sue without joining the owner. Where the assignor has reserved some rights – for example, the license grant is for only a particular field of use – the exclusive licensee has standing but the patent owner must also be joined. But what about the rights acquired through a security interest?

Non-party OnAsset Intelligence, Inc. was the predecessor-in-interest to plaintiff Intellectual Tech LLC. In 2011 OnAsset granted a security interest in the patent-in-suit ‘247 patent to Main Street Capital Corporation. The Patent and Trademark Security Agreement said that if OnAsset defaulted, Main Street could, “at its option,” “sell, assign, transfer, pledge, encumber or otherwise dispose” of the ‘247 patent, but only so long as OnAsset was in default. (Sect. 6.) The agreement also gave Main Street an irrevocable appointment as OnAsset’s attorney-in-fact, with “the right (but not the duty)” to execute any agreement in OnAsset’s name necessary for Main Street to enforce, license, sell, assign, transfer, pledge, encumber, or otherwise transfer title in the ‘247 patent. (Sect. 3(j).) Main Street could only exercise this power while OnAsset was in default and only “[t]o facilitate [Main Street’s] … exercising” the rights Main Street accrued while OnAsset was in default of the 2011 Loan Agreement.

In 2013 OnAsset did default, and in 2017 plaintiff IT was created to try to monetize the patent. OnAsset assigned the ‘247 patent to IT. Main Street agreed to enter into a period of forbearance on the default against OnAsset and IT entered into a Joint Agreement binding IT to the 2011 loan agreement between OnAsset and Main Street. IT also signed a security agreement that had the same terms as OnAsset’s original security agreement.

In 2018 IT defaulted. In 2019 IT brought this infringement lawsuit, in other words, at a time when Main Street could sell, assign, transfer, pledge, encumber or dispose of the ‘247 patent. The defendant, Zebra Technologies Corporation, filed a motion for summary judgment that IT lacked standing to bring the patent infringement lawsuit.

Zebra Technologies argued that OnAsset’s 2013 default automatically transferred the patent to Main Street, but the court disagreed. Texas law provides that, after default, a secured party “may take possession of the collateral,” not that the debtor is automatically divested of title to the collateral. Further, the secured party’s rights after a default can be defined in an agreement, and the language of the security interest in this case did not effect an automatic divestment, stating, Main Street “may, at its option” exercise its remedy of control of the use of the patent. There was no evidence that Main Street had done so.

But did Main Street’s ability sell, assign, transfer, pledge, encumber or dispose of the ‘247 patent, because IT was in default, deprive IT of standing? Why, yes it did. The court turned to WaIV Solutions LLC v. Motorola, Inc. to evaluate whether IT had sufficient rights in the patent for constitutional standing. WiAV held “[I]f an exclusive licensee has the right to exclude others from practicing a patent, and a party accused of infringement does not possess, and is incapable of obtaining, a license of those rights from any other party, the exclusive licensee’s exclusionary right is violated.” WiAV, 631 F.3d at 1266-67.

The Court holds that Main Street’s rights deprived IT of an exclusionary right at the time IT filed this Action. Zebra relies on WiAV, and the Uniloc opinions’ extension of WiAV, to argue that IT has no exclusionary right because Zebra could obtain a license on the asserted patent from Main Street. The Court agrees. On October 22, 2019, Main Street possessed an unfettered right to license the ’247 patent.4 Meaning Zebra had the “ability to obtain” a license to the ‘247 patent from Main Street. At the very least, IT has not provided contrary evidence regarding Zebra’s ability to obtain a license from Main Street. Because Zebra had that ability, IT could not have an exclusionary right against Zebra sufficient to engender Article III standing here.

4 It could be argued that Main Street did not possess a right to license the ‘247 patent because Section 6 of the 2011 Patent and Trademark Security Agreement does not explicitly provide for a right to license, even though Section 3(j) grants a power of attorney to license in support of Section 6. Section 6 did, however, expressly provide a right to assign: the ‘247 patent; and the right to sue for “past infringement” of the ‘247 patent. Accordingly, Zebra could have obtained title to the ‘247 patent from Main Street, effectively licensing all of Zebra’s past and ongoing accused conduct, thereby depriving IT of constitutional standing just as if Main Street had an unconditional right to license.

(Internal citations omitted.)

IT was not granted leave to amend to add or substitute Main Street, since constitutional standing must exist at the time of filing and can’t be cured by the addition of a party with standing.

Intellectual Tech LLC v. Zebra Tech. Corp., No. 6:19-cv-00628-ADA (W.D. Tex. May 20, 2022).

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