United States: Might No One Have Standing To Bring Suit?

Licensing is an integral part of today's business strategy and patent portfolio management. While the licensor and licensee can divide between them the variety of rights associated with a patent, it is important to understand that express language conferring a right is not necessarily effective. The right to sue those who infringe a patent has proven to be particularly troublesome to transfer by way of license agreement.

A recent Federal Circuit ruling, Morrow v. Microsoft (06-1512; Sept. 19, 2007), highlights one such example of a trap for the unwary. The opinion clearly implies that dividing the rights to a patent can create the situation that neither party has sufficient rights to enforce the patent.

We examine how this scenario arose and how terms of the license affect the right to enforce patents.

The Federal Circuit held in Morrow that if the party that is explicitly granted the sole right to bring suit does not also hold the exclusionary rights to the patent, then that party lacks constitutional standing and cannot cure this defect even by joining the patent owner in the suit. This decision yielded the seemingly anomalous result that the division of rights "extinguishe[d] all standing to enforce the patent."

In Morrow, a bankruptcy liquidation plan divided rights to a patent among three trusts. One trust received the rights to all causes of action aside from suits against controlling shareholders, including the right to claims for infringement. Another trust received ownership rights to the intellectual property, including legal title to and the right to license, the patent-in-suit. This trust also held the exclusive right to make, use and sell the patented invention.

Despite arguments that bankruptcy or trust law principles should apply to the standing analysis, the Federal Circuit readily concluded that patent law principles govern here—just as they do where parties have contractually divided patent rights, that is, entered licensing agreements. Thus, although Morrow arose from a bankruptcy matter, the same scenario can be created, and the same outcome obtained, with a license.

Standing

As for any suit, a plaintiff must have standing to enforce the claim, or else the court cannot hear the case. Standing includes both constitutional and prudential requirements. The minimal constitutional requirements are an injury in fact to the plaintiff, caused by acts of the defendant, that can be redressed by the court.

The Patent Act creates the statutory right to exclude other parties from practicing a claimed invention, the violation of which is an injury in fact. Courts have ruled that these exclusionary rights must be enforced through the party that holds legal title to the patent. In cases where the patentee (holder of legal title) has transferred the exclusionary rights, the patentee must be joined to the suit, but this is a prudential standing requirement. The injury in fact is suffered by the party holding the exclusionary rights, but the holder of legal title must be joined to eliminate the potential for multiple litigations.

The Morrow court has helpfully placed the types of plaintiffs in patent infringement suits into three general categories. The categories are defined according to the status a plaintiff would have in court. In the first category, a party may bring suit independently, that is, without the participation of any other party, such as the patent title owner. A category two party has standing to sue, but only as a co-plaintiff with the patentee. Finally, in the third category are parties that have no standing, either alone or as a co-plaintiff, because the rights held are inadequate to confer standing.

Category One Plaintiffs — "All Substantial Rights" Creates Independent Standing


Under the Patent Act, patent rights may be vindicated in court by the patentee, 35 U.S.C. § 281, and successors in title to the patentee, 35 U.S.C. § 100(d). In addition, courts have recognized that a transfer of "all substantial rights" of a patent to a licensee amounts to a "virtual assignment," and the licensee is deemed to have standing to bring suit for patent infringement independent of the patentee-licensor.

The Federal Circuit has defined "all substantial rights" as those rights sufficient for the licensee to be deemed the effective patentee under 35 U.S.C. § 281. Because the circumstances of each license are unique, courts must ascertain the parties' intent and the substance of the rights granted to determine if substantial rights are conveyed. Mere use of the terms "all substantial rights" or "exclusive license  grant" do not legally establish standing in the licensee.

A prerequisite to finding that "all substantial rights" have been transferred is that the license must include an exclusive grant of an exclusionary right. The exclusionary rights to a patent are those rights established by statute, for example, the right to make, use or sell the invention, that the patentee may exclude others from practicing.

Exclusivity does not require the licensee to be the "sole licensee." Courts recognize that a license is "exclusive" even if it is subject to pre-existing nonexclusive licenses. Instead, courts examine whether it clearly manifests a promise not to grant anyone else a license to the exclusionary right.

If a license includes an exclusive grant of an exclusionary right, the court then focuses on whether a license confers "all substantial rights" in a patent. Courts have found that, at minimum, the rights transferred must include: (a) the exclusive right to sue for patent infringement and control over the litigation and decisions to settle, and (b) the right of the licensee to freely assign, transfer or sublicense the agreement.

Where the right of the licensee to bring suit, or the right of the licensee to transfer its rights under the agreement has been limited in any substantive manner, courts have ruled that the licensee lacked "all substantive rights."

Non-substantive limitations are permissible. For example, if the transfer of the licensee's interest requires consent of the patentee-licensor, courts have held that, so long as consent shall not be withheld unreasonably then the rights of the licensee are sufficiently substantial. Other factors have also been considered, but not applied as dispositive elements in the analysis of "all substantial rights."

Category Two Plaintiffs — "Exclusive Licensee" Has Co-Plaintiff Standing


A category two plaintiff, previously often referred to as an "exclusive licensee," is a licensee that holds exclusionary rights in a patent but fewer rights than an assignee of "all substantial rights." The category two plaintiff can file suit alone, but at some point in the proceedings the patent title holder must be joined.

The exclusionary rights of a patent include, as noted above, the right to make, use, sell or import a claimed invention. Note that a patentee-licensor may separately license the exclusionary rights to the patent and create an "exclusive licensee" as to that particular right.

The Supreme Court noted in Bauer & Cie v. O'Donnell, 229 U.S. 1, 15 (1915), that "[t]here are several substantive rights, and each is the subject of subdivision, so that one person may be permitted to make, but neither to sell nor use, the patented thing. To another may be conveyed the right to sell, but within a limited area, or for a particular use, while to another the patentee may grant only the right to make and use, or to use only for specific purposes."

A patentee's promise to refrain from granting any further licenses in any individual exclusionary right of the patent makes that promise an "exclusive license" as to that right.

Note, too, that reserving in the patentee the right to practice the invention does not transform an exclusive license into a bare license, and the licensee maintains the status of a category two plaintiff.

Category Three — "Bare Licensee" Has No Standing


A "bare licensee" merely receives a personal right to use the invention under a covenant not to be sued by the patentee. Such licensees comprise the category three plaintiff, and have no right to bring suit. Courts are clear that a bare licensee cannot cure its lack of standing by joining the patentee as a party. These plaintiffs lack standing because they do not have the right to the exclusive practice of an invention, and therefore practice of that invention by another would not cause harm. Thus, they are unable to meet the injury-in-fact requirement for standing.

Standing In Morrow v. Microsoft

The Morrow court phrased the standing inquiry as whether the interests of the trust holding the right to sue include "sufficient exclusionary rights such that [they] suffer ... an injury in fact from infringing activities."

As the discussion above indicates, category one and two plaintiffs must be assignees of exclusionary rights in a patent, whereas a category three plaintiff lacks the exclusive right to practice under a patent.

The facts in Morrow are clear that the trust granted the right to sue was not also granted any exclusionary rights. The Morrow court further considered whether the requirement that that trust consent to the transfer of patent rights by one of the other trusts amounts to an exclusionary right and concluded that it does not. Even if it did, there is no restriction on the other trust to the further transfer of exclusionary rights to other parties.

Thus, even if exclusionary rights were found, those rights would not be exclusive. Recall that the exclusive grant of at least one exclusionary right is prerequisite to the creation of a category one or two plaintiff.

The Morrow court thus places the plaintiff-trustee in category three — a plaintiff without standing because it suffers no legal injury and thus also a plaintiff that cannot join the other trusts. Note, though, that the other trusts were not granted the right to sue, thus the trusts cannot bring suit, neither individually nor in combination, to enforce the patent whose rights they share.

The dissent argues that the trust should at least be a category two plaintiff. Judge Prost would find the trust suffered an injury in fact because it has an equitable interest in the patent title and because denying standing undermines the explicitly granted right to sue. This view does not, however, account for the trust not actually possessing proprietary rights under the patent, such as the right to make, use or sell the invention.

The U.S. Supreme Court held in Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24, 39 (1923), that grant of only the right to enforce a patent without the transfer of any "part of the title to the patent or interest in it conferred no right to sue." More recently, though, in Propat Int'l. Corp. v. Rpost Inc., the court seemingly broadened the inquiry by holding a licensee lacked standing despite an exclusive grant of the right to sue because it lacked "important indicia of a true ownership interest in the patent" and considered in its analysis more than just the right to practice the patent. 473 F.3d 1187, 1194 (Fed. Cir. 2007).

The Morrow court now appears to require "true ownership interest" to be an exclusionary right.

Conclusion

Despite a clear effort by parties to a license to confer the right to sue on one party to the agreement, a court may find that the rights have been divided in a manner that neither party has the requisite standing to bring an infringement suit.

The party holding the right to sue must also hold, exclusively, at least one exclusionary right under the patent. Then, depending on the disposition of other rights in the bundle, that party can either sue in their name alone or by joining the other party.

It is not just the bare licensee who lacks standing to sue, the bare holder of the right to sue is also likely left without a claim. At least in the scenario of a bare licensee, the right to enforce the patent still resides with the patentee. In the latter case, as Morrow shows, there may be no one who can enforce the patent.

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
23 Sep 2018, Seminar, Chicago, United States

Finnegan is a sponsor of the Intellectual Property Owners Association Annual Meeting, supporting the Women in IP Networking Brunch.

26 Sep 2018, Webinar, Washington, DC, United States

This latest series of webinars will explore emerging trends in the changing intellectual property (IP) legal environment in Europe and the United States.

26 Sep 2018, Webinar, Washington, DC, United States

This latest series of webinars will explore emerging trends in the changing intellectual property (IP) legal environment in Europe and the United States.

 
In association with
Related Topics
 
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions