Acquiring and Licensing Patents: Does the Language of Your Agreement Provide You with Enforcement Rights?

Acquiring and Licensing Patents:  Does the Language of Your Agreement Provide You with Enforcement Rights?

 

When acquiring or licensing patents, it is important to consider whether, and to what extent, the acquisition or license conveys the right to enforce the patents through litigation.  It is also important to understand whether you have the right to recover past damages.  Indeed, questions of standing to sue frequently arise in patent actions and are raised with great frequency in recent years.  As a result, acquirers and licensors of patent rights should focus early on in the negotiation process on questions of standing to make sure that their agreements convey rights to enforce the patents they acquire or license.

 

Who Can File a Lawsuit for Patent Infringement?

 

Under the Patent Act, only certain entities or people can sue for patent infringement:  the patentee (i.e., the inventor), an assignee, or an exclusive licensee that holds “all substantial rights” in the patent.  Mentor H/S, Inc. v. Medical Device Alliance, Inc., 240 F.3d 1016, 1017 (Fed. Cir. 2001); 35 U.S.C. 100(d).  An exclusive licensee that does not have all substantial rights in a patent “has standing to sue third parties only as a co-plaintiff with the patentee.”  Id.  The burden is on the plaintiff/licensee to show that it has all substantial rights in the patent.  Id.  A non-exclusive licensee has no standing to sue, either in its own name or as a co-plaintiff.  Intellectual Property Devel., Inc. v. TCI Cablevision of Cal., Inc., 248 F.3d 1333, 1345 (Fed. Cir. 2001).

 

Therefore, based on the case law it is plain than an assignee or the inventor can sue for patent infringement and that a non-exclusive licensee may not.  The question then arises when can an exclusive licensee sue for patent infringement.

 

When Can Exclusive Licensees Sue for Patent Infringement?

 

The determination of whether a licensee is exclusive and holds all substantial rights is a fact determination that depends on the contract and “the substance of the rights transferred and the intention of the parties involved.”  Intellectual Property Devel., 248 F.3d at 1342.  The Federal Circuit has held that the right to sue for infringement is “particularly dispositive” of this inquiry.  In Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870 (Fed. Cir. 1991), for example, the Federal Circuit held that because the licensee had the right to sue third parties for infringement, subject only to a requirement that it inform the patentee (but no obligation to obtain the patentee’s consent), the licensee was exclusive and possessed all substantial rights, and thus could sue in its own name.  Id. at 875-76.

 

On the other hand, in Mentor H/S, the patentee “retained significant ownership rights” in the patent, including the right to develop and manufacture products, supervise the licensee’s production, pay the maintenance fees for the patent, and “most importantly,” “the first obligation to sue parties for infringement.”  240 F.3d at 1018.  In Mentor H/S, the licensee had the right to sue only “in the event [the patentee] fails to do so.”  Id.  The Federal Circuit concluded that, “in light of [the patentee’s] substantial retained rights, particularly its initial right and obligation to sue for infringement . . . [the licensee] did not receive all substantial rights in the patent” and thus could not sue in its own name.  Id.  The Federal Circuit also held that this argument was jurisdictional and thus not waived by the defendant’s failure to raise it in the trial court.  Id.

 

Similarly, in Intellectual Property Devel., the Federal Circuit found that the patentee’s reservation that it must consent to litigation in certain circumstances effectively worked to allow the patentee to permit infringement in those certain circumstances.  248 F.3d at 1344.  Specifically, the Court held that “a transferee that receives all substantial patent rights from a transferor would never need consent from the transferor to file suit because such an assignment essentially transfers title in the patent to the transferee.”  Id.  The Federal Circuit also noted that the patentee’s reservation of right to approve the licensee’s assignments to third parties weighed “in favor of finding that an agreement constitutes a transfer of fewer than all substantial rights in a patent.”  Id. at 1345; citing Abbott Laboratories v. Diamedix Corp., 47 F.3d 1128, 1132 (Fed. Cir. 1995).

 

Therefore, it is important when negotiating an exclusive license to a patent to obtain all of the rights to enforce the patent, including the unfettered right to sue for infringement.

 

Can Nonexclusive Licensees Sue for Patent Infringement?

 

A nonexclusive licensee, on the other hand, has been described as “a bare licensee” which has “no right to exclude others from making, using, or selling the licensed products,” and which thus “has no legally recognized interest that entitles it to bring or join an infringement action.”  See Abbott Laboratories, 47 F.3d at 1131.  This is also described as a mere “covenant not to sue” the licensee agreed-to by the patentee.  Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1032 (Fed. Cir. 1995).  In addition, the two situations have been distinguished on the grounds that “an exclusive licensee could receive the exclusive right to practice an invention within a given limited territory.”  Intellectual Property Devel., 248 F.3d at 1345.

 

Assignment Agreements and Exclusive License Agreements:  Can the Assignee or the Licensee Sue for Past Damages?

 

The cases uniformly hold that “[i]nfringement . . . harms only the owner of the patent at the time of the infringing acts.”  Minco, Inc. v. Combustion Eng’g, Inc., 95 F.3d 1109, 1117 (Fed. Cir. 1996).  “Thus, the conveyance of the patent does not normally include the right to recover for injury occurring to the prior owner.”  Id.

 

However, “[a] party may sue for past infringement transpiring before it acquired legal title if a written assignment expressly grants the party a right to do so.” Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359 (Fed. Cir. 2010) (ordering dismissal of case), citing Moore v. Marsh, 74 U.S. 515, 522 (1868) (“[I]t is a great mistake to suppose that the assignment of a patent carries with it a transfer of the right to damages for an infringement committed before such assignment.”) (Emphasis added.)  Courts use state law to determine what the written assignment agreement contains.  See, e.g., A10 Networks, Inc. v. Brocade Communications Systems, Inc., 2012 WL 1932878 (N.D. Cal. May 29, 2012) (granting motion to dismiss; in part, determining that license agreement did not provide right to sue for prior infringement for licensee that was not an assignee); McNulty v. Taser Intern., Inc., 2002 WL 257860 (C.D. Cal. Feb. 4, 2002) (granting partial summary judgment; because licensing agreement did not include clear language providing that licensee could sue for past infringement, his right to sue started on the date of the license); Wacoh Co. v. Chrysler LLC, 2009 WL 36666, at *8 (W.D. Wisc. Jan. 7, 2009) (same).  Cf. Enovsys LLC v. Nextel Comms., Inc., 614 F.3d 1333, 1341 n. 2 (Fed. Cir. 2010) (“Enovsys had the right to sue for infringement occurring before the 2006 assignment because the assignment agreement stated that Fomukong and his coinventor were transferring their ‘right to sue and collect for past damages.’ The agreement thus sufficiently manifested an intent to transfer this right.”)

 

Accordingly, when negotiating an assignment agreement or an exclusive license agreement, it is important to specify that the new assignee or licensee has the right to sue for past damages.

 

Conclusion

 

Given the importance of intellectual property and, in particular, patents, to companies and their performance and overall worth, companies should take extra care to make sure that their assignment agreements and license agreements provide them with full rights to the patents they acquire or license.  These provisions should be negotiated at the very beginning of any transaction to make sure they are addressed early and correctly.