Let's say a company negotiates a patent license agreement
with the patent owner. The agreement includes a clear prohibition
against assignment – in other words, for either party to
transfer their rights under the agreement, they have to get the
consent of the other party. So what happens if the underlying
patent is transferred by the patent owner?
The clause in a recent case was very clear:
Neither party hereto shall assign, subcontract,
sublicense or otherwise transfer this Agreement or
any interest hereunder, or assign or delegate any of its rights or
obligations hereunder, without the prior written consent of
the other party. Any such attempted assignment,
subcontract, sublicense or transfer thereof shall be void and have
no force or effect. This Agreement shall be binding upon, and shall
inure to the benefit of the parties hereto and their respective
successors and heirs. [Emphasis added]
That was the clause appearing in a license agreement for a
patented waterproof zipper between YKK Corp. and Au Haven LLC, the
patent owner. YKK negotiated an exclusive license to manufacture
the patented zippers in exchange for a royalty on sales. Through a
series of assignments, ownership of the patent was transferred to a
new owner, Trelleborg. YKK, however, did not consent to the
assignment of the patent to Trelleborg. The new owner later joined
Au Haven and they both sued YKK for breach of the patent license
agreement as well as infringement of the licensed patent.
YKK countered, arguing that Trelleborg (the patent owner) did
not have standing to sue, since the purported assignment was void,
according to the clause quoted above, due to the fact that
YKK's consent was never obtained: "Any such attempted
assignment, subcontract, sublicense or transfer thereof
shall be void and have no force or effect."
(Emphasis added) In other words, YKK argued that since the
attempted assignment of the patent was done without consent, it was
not an effective assignment, and thus Trelleborg was not
the proper owner of the patent, and thus had no right to sue for
infringement of that patent.
The court considered this in the recent US decision in
Au New Haven LLC v. YKK
Corporation (US District Court SDNY, Sept. 28,
2016) (hat tip to Finnegan). Rejecting YKK's
argument, the court found that the clause did not prevent
assignments of the underlying patent or render assignments of the
patent invalid, since the clause only prohibited assignments of the
agreement and of any interest under the
agreement, and it did not specifically mention the assignment
of the patent itself.
Thus, the transfer of the patent (even though it was done
without YKK's consent) was valid, meaning Trelleborg had the
right to sue for infringement of that patent.
Both licensors and licensees should take care to consider the
consequences of the assignment provisions of their license, whether
assignment is permitted by the licensee or licensor, and whether
assignment of the underlying patent should be controlled under the
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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