United States: Patent Owner Who Retains Rights To Practice Need Not Be Joined In Enforcement Actions By Its Licensee

Abstract

The Federal Circuit Court of Appeals recently held that a licensor did not need to be joined in its exclusive licensee's patent infringement case despite the fact that the licensor retained the right to practice the patent, concluding that the licensor's right to practice the licensed patent was not a "substantial" right.


In a recent case, Luminara Worldwide, LLC v. Liown Electronics Co. Ltd.1, the U.S. Court of Appeals for the Federal Circuit affirmed a district court's holding that a licensor did not need to be joined in its exclusive licensee's patent infringement case despite the fact that the licensor retained the right to practice the patent. On separate grounds, the Federal Circuit vacated the district court's claim construction of a claim term and vacated the grant of a preliminary injunction.

Background

Candella licensed patents from Disney relating to artificial candles in 2008. In 2014, Candella merged with Luminara Worldwide LLC, (both parties are referred to as Luminara in this article). Disney renewed its patent license agreement with Luminara in 2012, and revised the terms of the agreement four more times over the course of the next three years to grant Luminara additional rights in the licensed patents, including the ability to assign its rights as a licensee and to control litigation of the licensed patents without Disney's consent.

Luminara twice entered into failed negotiations with Liown to manufacture Luminara's artificial candles. Following those negotiations, Liown began selling its own competing artificial candles, and Luminara ultimately brought suit for patent infringement, tortious interference, and trademark infringement in the U.S. District Court for the District of Minnesota. Liown moved to dismiss the lawsuit, arguing that Luminara lacked standing to sue without Disney because Disney retained the right to freely license the technology by creating new "Affiliates" under the license. Liown argued because Disney retained the right to license its new affiliates, Luminara did not have exclusionary rights to the asserted patents and couldn't assert the patents without Disney.

The district court denied Liown's motion, finding that Luminara had both Constitutional and prudential standing to sue. The district court also granted a motion for a preliminary injunction filed by Luminara, essentially holding that Luminara's case was strong enough (and the risk of harm without an injunction was great enough) to justify blocking further sales of Liown's product while the litigation progressed. Liown appealed both the denial of its motion to dismiss and the grant of Luminara's motion for preliminary injunction.

Liown's Motion to Dismiss for Lack of Standing

The Federal Circuit first addressed whether Luminara had standing to sue. The court noted that the initial patent license between Disney and Luminara restricted Luminara's rights in several ways, including restrictions on assigning, sublicensing, and transferring ownership of rights under the license, as well as restrictions on enforcing the patents without Disney's express consent. The initial license was later amended four times to extend the term of the patent license and to transfer additional rights to Luminara, including the right to transfer/assign Luminara's rights under the license and to sue to enforce the patents without Disney's consent.

In assessing whether Luminara had standing to sue, the Federal Circuit focused on whether Luminara held "exclusionary rights" to the asserted patents such that it could sue competitors for infringement. Liown argued that Luminara did not hold exclusionary rights to the patents because Disney retained the right to "freely license the technology to any entity by creating new Affiliates," thus retaining the ability to license the patents to entities other than Luminara. The court observed that the issue of standing hinged on the interpretation of the term "Affiliate" in the license agreement—if Disney could indeed license any entity to manufacture and sell its artificial candles, Luminara did not have exclusionary rights to the asserted patents. On the other hand, if Disney did not retain the effective right to license the patents through the "Affiliate" provision, Luminara did hold exclusionary rights to the patents.

Liown argued that the definition of "Affiliate" in the license encompassed any entity "operated by or under license from" Disney, meaning that any entity "under license" from Disney (but not operated by Disney) could practice the patents as an "Affiliate," effectively allowing Disney to freely license the patents. The Federal Circuit disagreed concluding that Liown's proposed interpretation of the license was incorrect since the license agreement repeatedly stated that Luminara did have exclusive rights to the artificial candle technology claimed in the licensed patents, and that such a statement "would be a fiction" under Liown's proposed reading of the contract. The court further determined that the amendments to the license were intended by the parties to confer standing to sue upon Luminara.

The court also rejected Liown's argument that, because Disney retained substantial rights under the license, Luminara could not bring suit in its own name without joining Disney as a co-plaintiff in the litigation. The court explained that an exclusive licensee holding all substantial rights to a patent may sue without joining the patent owner, but that otherwise, the owner of the patent must be joined to the suit. The court noted that the joinder requirement exists for two reasons: to protect the alleged infringer from facing multiple lawsuits on the same patent; and to protect the patent owner from losing substantial rights if its patent claims are invalidated or rendered unenforceable in an action in which it did not participate.

The court explained that whether the right to sue for infringement was conveyed under the license is a "critical" consideration. While Liown argued that Disney retained a number of rights under the license, including the right for Disney and its affiliates to practice the patents, title to the patents, the responsibility to pay maintenance fees to keep the patents in force, a financial interest in litigation and licensing, and a right to notice of litigation and licensing activities, the court concluded that none of those retained rights, individually or cumulatively, were substantial enough to preclude Luminara from bringing suit in its name alone.

The court specifically explained that the retained right to practice the patent is not a "substantial" right requiring joinder, because Disney would not lose this right if the claims were invalidated or the patent held unenforceable. Rather, if the claims were invalidated or the patent were held unenforceable, "everyone, including Disney Enterprises and its affiliates, could freely practice the patent." The court further explained that a "patentee that merely retains the right to practice the patent does not risk losing a substantial right if the claims are invalidated or the patent held unenforceable. The retained right to practice a patent is not the same as a retained right to exclude others from doing so."

The court thus determined that Luminara held all "substantial" rights to the patents, including the sole and exclusive right to sue for infringement, and that Disney was not in danger of losing substantial rights by not being joined. The court concluded that Disney did not need to be joined as a co-plaintiff with Luminara.

Luminara's Motion for a Preliminary Injunction

After determining that Luminara had standing to sue, the Federal Circuit turned to Liown's argument that the preliminary injunction was improper since there was a substantial question of validity regarding the sole claim upon which the injunction was based. The parties agreed that a prior art reference disclosed every limitation of the sole claim forming the basis of the preliminary injunction except for one disputed claim term.

The Federal Circuit determined that the district court's construction of the disputed term did not comport with its "plain meaning," which a court is bound to adopt unless the patentee defines the claim term in a particular way or disavows the normal scope of a term. The Federal Circuit vacated the district court's construction in favor of a new construction. The court concluded that, because the prior art patent appeared to disclose the disputed claim term under the Federal Circuit's new construction, a substantial question of validity existed with respect to the asserted patent claim that warranted vacating the district court's preliminary injunction.

The court noted that the vacated preliminary injunction was based on just one claim of one of the asserted patents, and that an injunction based on other grounds might still warrant entry of a preliminary injunction.

Strategy and Conclusion

This case illustrates that the right to practice a patent is not a "substantial right" retained by a licensor, and that a licensor who retains the right to practice a licensed patent does not need to be joined in its exclusive licensee's lawsuit for patent infringement.

Footnote

1 The Luminara Worldwide, LLC v. Liown Electronics Co. Ltd. decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/15-1671.Opinion.2-25-2016.1.pdf.

Previously published by LES Insights

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
15 Nov 2017, Conference, California, United States

Finnegan is a Gold sponsor of the second annual Digital Media & IP Forum, hosted by World Congress.

15 Nov 2017, Conference, London, UK

Finnegan partner Leythem Wall will consider European claim drafting strategy and will lead the Chemical Workshop during a two-day course, hosted by Management Forum.

15 Nov 2017, Seminar, Amsterdam, Netherlands

Finnegan partner Anthony Tridico will lead Forum Institute for Management’s course comparing patent law in the United States and Europe.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.