Getting Over The Patent Licensing Hurdle: When Does The Licensee Have Independent Standing To Sue For Infringement?
The issue of a licensee's standing to bring a patent infringement lawsuit independent of the licensor has been addressed in several decisions by the Court of Appeals for the Federal Circuit. These decisions focus on the language of the license agreement that controls the relationship between the licensee and the licensor. The court's stated purpose is to determine the extent of rights transferred to the licensee. Under the crucible of litigation, the probability of the licensee having independent standing to sue increases as the license 'looks' more and more like an assignment.1
When licensing patent rights, not every patent owner wants to completely alienate itself from its intellectual property rights in a technology. Instead, a patent owner may wish to maximize profits by carving up its total rights and licensing to multiple parties through field of use or geographical restrictions. Dividing license rights, among more than one licensee, is often more lucrative than simply assigning rights to a single party. This approach can be risky, however, if the owner wishes to avoid litigation in the event that an infringer of the licensed patent is identified. All too often, a licensor gets pulled into a lawsuit because a licensee demands action against an actual or potential infringer of the licensed patent. The risk of litigation can increase dramatically where a licensor has an active licensing program and has granted many license agreements to a variety of licensees. To litigate a single patent infringement lawsuit to judgment can easily cost from one and one half to three million dollars.2
This article examines federal court treatment of independent licensee standing, where the underlying patent license is not the exact equivalent of an assignment. Proper drafting can provide the licensor with the ability to carve up its rights in the technology, while providing the licensee with independent standing to bring an infringement suit under the licensed patent.
Standing In The Federal Courts
The ability to sue, or standing, for patent infringement derives from the Patent Act, which provides that '[a] patentee shall have remedy by civil action for infringement of his patent.' 35 U.S.C. § 281 (1994). As defined in section 100(d), the term 'patentee' includes 'not only the patentee to whom the patent was issued, but also the successors in title to the patentee.' 35 U.S.C. § 100(d) (1994). A patentee may assign rights in the patent to another party who is then a successor in title. 35 U.S.C. § 261 (1994). Legal title in a patent can be conveyed in the form of the entire patent, an undivided part or share of the entire patent, or all rights under the patent in a specified geographical region. Waterman v. Mackenzie, 138 U.S. 252, 255 (1891). A license differs from an assignment in that a license splits the legal title from the equitable title. When granting a license, the licensor retains legal title and passes equitable title to the licensee.
Courts employ the concept of standing to refuse to determine the merits of a legal claim, even though the claim is meritorious, because the plaintiff is not properly situated. Valley Forge Christian College v. Americans United for Separation of Church and State, 454 U.S. 464, 484, 102 S.Ct. 752, 765, (1982). Focus is on the plaintiff, not the claim. See Id. When the standing of a litigant is placed at issue, the court must undertake a two-step analysis that involves both constitutional3 and prudential limitations.4 Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205 (1975).
First, the court must determine whether the litigant satisfies the requirements under Article III of the Constitution. Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 38, 96 S.Ct. 1917, 1924 (1976). Constitutional standing questions the power of the court to hear and decide a case and can never be waived by a party. Boeing Co. v. Comm. of Patents and Trademarks, 853 F.2d 878, 881 (Fed. Cir. 1988). A court must dismiss an appeal whenever it becomes apparent that jurisdiction is lacking.5 Id.
Second, the court will examine any prudential limitations that would prevent an exercise of judicial power.6Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 99-100, 99 S.Ct. 1601, 1608 (1979). The question of whether a party may waive the prudential standing requirement in licensee standing disputes was recently settled in Mentor H/S, Inc. v. Medical Device Alliance, Inc., 240 F.3d 1016 (Fed. Cir. 2001), discussed below.
The Standing of the Licensee is Never Subject to Waiver
A defendant may raise the standing and joinder issues at any time during litigation, either during the district court proceedings or on appeal. Enzo APA & Son, Inc. v. Geapag A.G., 134 F.3d 1090, 1092 (Fed. Cir. 1998). If the court finds that the licensee does not have standing to bring the current action against the defendant, the court can rightfully dismiss the action with prejudice, thereby preventing any future action against the defendant. Textile Productions, Inc. v. Mead Corp., 134 F.3d 1481, 1485 (Fed. Cir. 1998).
Because a party must possess the rights it seeks to vindicate in court, standing must have been proper when the licensee filed the action against the defendant. See Enzo, 134 F.3d at 1093. Standing is not retroactively curable with a further licensing agreement between the licensor and the licensee. Id. at 1092. Moreover, since the Federal Circuit reviews standing and joinder issues de novo, an on-going lawsuit could be delayed by a lengthy Federal Circuit appeal at any time. See Textile, 134 F.3d at 1483.
If a licensee's failure to join the licensor results in a finding by the district or appellate court that the licensee lacks independent standing, the licensee's case can be dismissed with prejudice. This danger was clearly stated in the Federal Circuit's recent Mentor decision. Mentor, 240 F.3d at 1019. Relying on Textile, the court stated that '[o]rdinarily, when the plaintiff who brought suit is found to lack standing, the suit is dismissed.'7 Id. Although on the facts of Mentor, the court allowed the licensee to file a motion to join the patent holder, leaving open the possibility that the case will not be dismissed, the court held that adding a party at the appellate level is only appropriate under 'rare circumstances.' Id.
In addition to reiterating the threat of dismissal with prejudice as an appropriate judicial response to a licensee's lack of standing, the Federal Circuit's Mentor decision eliminated any possibility of a defendant having waived the issue of a licensee's standing. Because the question of who has standing to enforce patent rights is controlled by statute, 35 U.S.C. § 281, it is purely jurisdictional in nature. Id. See Prima Tek II, L.L.C. v. A-Roo Co., 222 F.3d 1372, 1376-77 (Fed. Cir. 2000). In accordance with Second and D.C. Circuit precedent, the Mentor court put to rest any possible defense to a lack of standing arising from waiver by the defendant.8 The defendant can raise the issue of the licensee's standing at any time during litigation and up to and including appeal.
In Intellectual Property Dev., Inc. v. TCI Cablevision of Calif., Inc., 248 F.3d 1333 (Fed. Cir. 2001), the court carved out circumstances under which joinder of a licensor as an indispensable party is proper. The Federal Circuit also affirmed the district court's approach to resolving a licensee's lack of independent standing with the harsh consequence of dismissal with prejudice. Id. at 1349. While the licensee, IPD, lacked independent standing to sue, because the license granted 'fewer than all substantial rights,' the district court allowed the licensee to amend the complaint to add the licensor of the patent in suit, thus avoiding dismissal. Id. at 1345. The court held that when a licensee has an exclusive right to make, use, and sell the invention claimed in the patent - basically a territorial substantial right - but lacks the substantial right-to-sue, joinder is proper if the licensee can meet the three factors for constitutional standing set forth by the Supreme Court inRains and Lujan (see footnote 3). Id. at 1346-47.
Licensee Standing Requires Transfer of All Substantial Rights by the Licensor
As a general rule, the Federal Circuit adheres to the principle that a licensor should be joined, either voluntarily or involuntarily, in any infringement suit brought by a licensee.Abbott Laboratories v. Diamedix Corp., 47 F.3d 1128, 1131 (Fed. Cir. 1995). This general rule is subject to exception when the licensor makes an assignment of all substantial rights under the patent. See Prima Tek, 222 F.3d at 1377. The licensee is then the effective 'patentee' under 35 U.S.C. § 281 and may have standing to maintain an infringement suit without joining the licensor. Id. The licensee's independent standing to enforce patent rights against an infringer will be determined by whether the license agreement transferred the substantial patent rights to the licensee.
The intention of the parties and the substance of what was granted, in addition to the rights retained by the licensor, are examined at the time of the grant to determine if the licensor transferred all substantial rights to the licensee. Id. at 1378. The intent of the licensor and the licensee will be examined as manifested only by the terms of their license agreement and the substance of the grant. Textile, 134 F.3d at 1484.
When the Federal Circuit determines if a licensee transferred all substantial rights, and therefore, may maintain a patent infringement action without the licensor as a co-plaintiff, two inquiries appear determinative. The first is whether the pre-complaint grant gave the licensee the right to exclude all others, including the licensor, from making, using, or selling the licensed technology in a specific area. The second is whether the licensee was given the right to independently sue infringers.
The Exclusive Right To Practice The Invention
For exclusive rights to transfer, the agreement, as a whole, must state or imply the licensor's promise to exclude others (including itself) from making, using, and selling the invention in the territory covered by the license. Id. at 1485. See also Western Elec. Co. v. Pacent Reproducer Corp., 42 F.2d 116, 118 (2nd Cir. 1930); Prima Tek, 222 F.3d at 1379. For the license to be held exclusive, it '…must clearly manifest the patentee's promise to refrain from granting to anyone else a license in the area of exclusivity.' Id. Although the licensor can license the same technology to another party outside of the licensee's territorial area of exclusivity, for the license to be exclusive, the licensor cannot be found to retain the right to practice or license the same technology in the area of the licensee's grant. Viam Manufacturing, Inc. v. Tesor Technology Corp., 243 F.3d 558 (Table), 2000 WL 1234623 at *2 (Fed. Cir. 2000). If the court finds language that either states or implies that the licensor has retained the right to make, use, or sell the licensed technology in the territorial area exclusively granted to the licensee, the licensor will be held an essential party to the infringement action and will be involuntarily joined.Abbott, 47 F.3d at 1131.
Conversely, if the license agreement grants the licensee full rights to exclude others, including the licensor, from making, using, and selling the invention in an exclusive territorial area, then the condition of exclusivity will be met. This is clear from the Federal Circuit's Prima Tek decision, where the court held an exclusive, territorial license is equivalent to an assignment and may confer standing upon the licensee to sue for patent infringement. Prima Tek, 222 F.3d at 1377. Additionally, in Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870 (Fed. Cir. 1991), the court held that the licensor's retention of reversionary rights on the licensee's nonperformance or bankruptcy does not adversely affect transfer of this substantial right. Id. at 875. An exclusive, territorial license, therefore, can be construed as the equivalent of an assignment, even when the licensor protects against the licensee's contractual breach or financial failure.
The Right To Sue Infringers
The second determinative inquiry is whether the licensee was granted the right to independently sue potential infringers and collect any judgment awarded by the court. Under Federal Circuit precedent, the right-to-sue is a key factor indicating that the licensee enjoys substantial rights in the licensed technology. Notably, Intellectual Property Dev.; Mentor;Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245 (Fed. Cir. 2000); and McNeilab, Inc. v. Scandipharm, Inc., 95 F.3d 1164 (Table), 1996 WL 431352 (Fed. Cir. 1996) were decided chiefly on the right-to-sue issue.
The licensee is held to possess the substantial right-to-sue when the licensor retains the right of first refusal to bring the action. Often the parties will agree on a provision that requires the parties to first consult with each other regarding who shall enforce the licensed patent rights. These provisions are typically structured as follows: upon notice of infringement of the licensed patent and after the consultation, the licensor may proceed singularly, join with the licensee, or waive the right-to-sue an infringer. In the event the licensor chooses not to proceed with litigation, the licensee has complete rights to enforce the patents and solely proceed at its own expense and risk. Under this type of provision, the licensor retains the right to initially participate in the litigation, but it lacks the power to limit the licensee's pursuit of the case and may lack the right to share in any reward. Such a provision results in the licensor's forfeiture of any power to prevent or control the licensee's enforcement action.9
In Mentor, the court held that substantial rights did not transfer to Mentor because the patent owner, Sonique, retained significant ownership rights in the patent at issue.Mentor, 240 F.3d at 1018. Under the 'right-to-sue' provisions of the license agreement, failure of the licensor to bring suit to enforce its patent rights resulted in a breach of the licensing agreement with the licensee. Id. Mentor, the licensee, could only sue in the event Sonique, the licensor, breached the agreement. Id. In essence, Mentor only had the power to sue if Sonique's breach would result in a waiver of all patent rights against the potential infringer. On these facts, the Federal Circuit held that Mentor was an exclusive licensee not in possession of all substantial rights under the license.Id.
Applying the reasoning of Mentor, a licensee should have standing to sue - absent any other negative factors - where a licensor does not breach its agreement by electing not to sue, and there is nothing in the license agreement that explicitly limits the licensee's independent right-to-sue. In this regard, a licensor could decline to participate and simply support the licensee's endeavors, but retain no right to limit the licensee's independent actions. Beyond some initial consultation with the licensor, the licensee should have no duty to the licensor before bringing an enforcement action.10 Accordingly, where there is merely a duty to cooperate with the licensee, Mentor should not bar the licensee's standing.
A licensor's right of first refusal to bring suit requires careful drafting to avoid retaining rights fatal to the licensee's standing. The licensor's right of first refusal to bring suit was at issue in McNeilab, where the Federal Circuit held that all substantial rights were transferred to the licensee.11 McNeilab, 1996 WL 431352 at *4. Although the right-to-sue provision in McNeilab stated that the licensor had an obligation to sue third parties for infringement, should the licensor choose not to enforce its rights within a reasonable amount of time, the licensee could bring a suit in its own right and retain all recovered awards. Id. The district court held this provision failed to give the licensee independent standing to sue. Id.
The Federal Circuit, however, reversed the district court and held that the licensee had independent standing because the provision was a 'negation,' as should be present in a well-drafted agreement and not a retention of right. Id. In coming to this conclusion the court found determinative (1) the fact that the licensee could not require the licensor to bring or prosecute an infringement action, (2) the fact that the licensor could not prevent the licensee from enforcing the patents, and (3) the fact that the licensee was not required to share proceeds from such enforcement with the licensor. Id. Even if the licensor reserves the right to receive infringement damages, this - by itself - should not result in denial of licensee's standing.See Vaupel, 944 F.2d at 875.
The Right To Grant Sublicenses
Although not as determinative of the licensee's standing as the right to exclude others and to independently bring suit, the Federal Circuit also reviews the extent of any sublicensing rights transferred to the licensee. Although, case law addressing how sublicensing restrictions affect a licensee's substantial rights is less developed, a licensor's retention of veto power over the licensee's right to grant sublicenses can negatively affect the licensee's standing. See Intellectual Property Dev., 248 F.3d at 1345; Abbott, 47 F.3d at 1132. While sublicensing restrictions do not always adversely affect independent licensee standing, conditions precedent (prior requirements) to the right vesting definitively deny standing. Vaupel, 944 F.2d at 875.
The sublicensing issue can be significant because it is construed as a transferability restriction. If a court finds the license agreement to significantly diminish the licensee's substantial right to sublicense the technology, the licensor will be involuntarily joined. A requirement that a licensee give notice to the licensor before sublicensing the technology, should not by itself adversely affect the licensee's standing to sue. This is not the case, however, where a licensor limits the licensee's transfer rights only to selected parties.
In Prima Tek, the Federal Circuit held that a licensing agreement requiring the licensee to execute a sublicense to a named sublicensee, and to no one else, did not constitute a transfer of all substantial rights to the licensee. Prima Tek, 222 F.3d at 1379-80. Notably, the Prima Tek licensee had no substantial rights except to sublicense the patented technology.12 Moreover, a court could find this restriction a condition precedent to the vesting of licensee's right to sublicense. For example, inTextile, the Federal Circuit held that if a condition precedent exists to the licensee's ability to sublicense the technology, the licensor retains that right and the licensee lacks independent standing. Textile, 134 F.3d at 1485. Although unlikely, a court could hold a preselected sublicensee restriction to be a condition precedent to the right to sublicense and compel the licensor to join the action. This reasoning could likely be overcome by arguing that a condition precedent (an event which must occur before a contract becomes enforceable), unlike the sublicensing restriction, could not have existed when the license was signed.
When the licensor retains the right to control sublicensing of the technology, the question of whether all substantial rights are transferred arises. While important, this right appears subjugated to exclusivity of territory and the right to independently sue. For example, in Vaupel, where an exclusive territory was found, the court held that a sublicensing veto, requiring a licensee to obtain the licensor's written consent to sublicense, did not deprive the licensee of independent standing.13Vaupel, 944 F.2d at 875. In contrast, where neither an exclusive territory nor the right to independently sue existed, as in Abbott, the licensee lacked standing because it could only sublicense to successors in business. Abbott, 47 F.3d at 1132.
A licensor's requirement of notice prior to a licensee's sublicensing of the technology should not adversely affect transfer of the substantial right to sublicense, since it is less restrictive than actual veto power. Conversely, any sublicensing provision that is more restrictive than a simple veto power can result in a denial of the licensee's standing, especially if no exclusive territory exists. For example, should a license agreement call for the licensee to make payments to the licensor for royalties collected under a sublicense, the licensee's standing will be in jeopardy. In Abbott, such a restriction was held to support a lack of substantial rights transfer. Id. at 1129.
The Right to Permit Infringement
In Intellectual Property Dev., the Federal Circuit found that the licensee lacked standing where the licensor could unilaterally end an infringement lawsuit initiated by the lessee. The license agreement between Intellectual Property Development, Inc. (IPD) and the patent's owner, CPL, granted IPD an exclusive license to make, use and sell the invention and to take action to prevent infringement of the patent.14 Id. at 1336-37. However, this 'right-to-sue' provision was tempered by the licensee's inability to bring or settle a suit without the prior written consent of the licensor.15 Id. Additionally, the licensor reserved the right to withdraw consent to the suit at any time until termination and required the licensee to pay 50% of any profit from the suit to the licensor.16 Id. The agreement also prevented IPD from assigning its rights under the agreement without consent of the licensor.17 Id.
On these facts, and the case law discussed supra, it is not surprising that IPD, lacked sufficient substantial rights in the patent to support an independent standing to sue.18 As in Speedplay, the court primarily focused on which party had final control of the litigation, as determined by which party could permit infringement. See Id. at 1344. The court held that since the licensor could permit infringement, by withdrawing from litigation if 'necessary,' the licensee lacked control of the litigation. Id.
Under Intellectual Property Dev., for a licensee to possess the substantial right-to-sue, the licensor cannot have the power to permit infringement. If a license agreement provides a conditional allowance for a licensor to join the litigation, the licensee's standing evaporates if the licensor can control the litigation to the point of permitting infringement.19
If the purpose of a license agreement is to grant independent standing to the licensee, the licensor cannot retain the right to permit infringement. Intellectual Property Dev. suggests that the Federal Circuit may rely on the 'who has the power to permit infringement' test to determine which party has the substantial right-to-sue. Such a test is more clear-cut than weighing multiple factors surrounding who has which rights in the event of litigation.20
Although not as determinative as exclusive territorial and enforcement rights, a licensee's right to improvements in the licensed technology supports the substantial transfer of patent rights to the licensee. In Speedplay, the court held that the licensee obtaining rights to improvements during the term of the agreement supports a transfer of substantial rights.Speedplay, 211 F.3d at 1252. The position of the licensee can be bolstered by a requirement that each party is free to patent its improvements and that the licensor communicate all improvements to licensee, who may use them as a matter of right.21
The courts continue to review licensee standing issues on a case by case basis. An analysis of this case law points to several guidelines when drafting a license agreement where the licensor wishes to convey the right to independently sue an infringer to the licensee.
The substantial rights that should be transferred to the licensee to give the licensee standing to sue under a licensed patent or patents include:
- an exclusive right to make use and sell, at least within a defined geographic area or market;
- an unfettered right-to-sue infringers and permit infringement; and
- the right to grant sublicenses with no conditions precedent.
The licensor, however, can retain several important rights, including:
- the right to grant licenses in other geographic regions and markets;
- the right of first refusal to cooperate with the licensee in litigation;
- the reversionary rights to the patent in the event of licensee nonperformance or bankruptcy;
- the right to share litigation profits (likely); and
- in some cases, the right to reject potential sublicensees.
Although there are no guarantees, following the above guidelines will go a long way toward accomplishing the objective. It should always be kept in mind, however, that a licensor can be involuntarily joined to a licensee's patent infringement action if a court finds that the license agreement between the parties did not transfer all substantial rights in the patent. The danger of compulsory joinder is continuous. Also, a defendant may raise the issue at any time, even on appeal. If the court cannot exercise jurisdiction to force the licensor's joinder, and the licensor refuses to join, the licensee's case can be dismissed with prejudice.
While the parties are free to contract and to negotiate numerous provisions in an attempt to insure that the licensee will have standing to bring suit, even where the provisions are fully supported by the current case law, the final determination of a licensee's standing will be made by a judge. Accordingly, a patent licensor, especially in complex patent litigation, always bears the risk that a court may come to a different conclusion. With careful drafting, however, this risk can be minimized, while permitting the licensor the freedom to fully exploit its intellectual property rights.
- In Intellectual Property Dev., Inc. v. TCI Cablevision of Calif., Inc., 248 F.3d 1333, 1344 (Fed. Cir. 2001), the court held that whether an agreement uses the term 'license' rather than 'assignment' is not determinative of the rights transferred by the agreement.
- AIPLA Report of Economic Survey 2001, American Intellectual Property Law Association, Fetzer-Krause, Inc., pp. 84-85.
- The minimum constitutional standing requirements are an (1) injury-in-fact, (2) attributable to the defendant, that (3) can be remedied by the court. Raines v. Byrd, 521 U.S. 811, 818 (1997); Lujan v. Defenders of Wildlife, 504 U.S. 555, 571 n.4 (1992).
- Prudential standing is part of judicial self-governance.UPS Worldwide Forwarding, Inc. v. United States Postal Service, 66 F.3d 621, 626 n. 6 (3rd Cir. 1995). The prudential standing rules require that: (1) a litigant 'assert his own legal interests rather than those of 3rd parties,' (2) a court refrains from deciding political questions, and (3) a litigant demonstrate that he was intended to be protected by the statute, rule, or constitutional provision on which the claim is based. Wheeler v. Travelers Ins. Co., 22 F.3d 534, 538 (3rd Cir. 1994).
- Cegedur unsuccessfully argued that it had standing because Boeing and the Commissioner waived the issue of standing by not opposing Cegedur's motion to intervene as a matter of right pursuant to Fed. R. Civ. P. 24(a)(2).
- While it is established that prudential standing under the APA may be waived by the parties because it is not jurisdictional,Duty Free International, Inc. v. United States, 88 F.3d 1046, 1048 (Fed. Cir. 1996), the circuits were split, and direct precedent did not exist in the First Circuit until theMentor decision, on the issue of whether prudential standing is otherwise waivable. In the Second and D.C. Circuits, '[s]tanding, whether constitutional or prudential, is a jurisdictional issue which cannot be waived or conceded.'Animal Legal Defense Fund, Inc. v. Espy, 29 F.3d 720, 723 n. 2 (D.C. Cir. 1994). The Fifth and Seventh Circuits interpret real-party-in-interest, or prudential, questions as waived if not raised before trial. Ensley v. Cody Resources, Inc., 171 F.3d 315, 318 (5th Cir. 1999); Lindley v. Sullivan, 889 F.2d 124, 129 (7th Cir. 1989). The Third Circuit acknowledged the split, but failed to decide the issue. UPS, 66 F.3d at 626.
- Although the Federal Circuit held that dismissal with prejudice was appropriate in Textile, the district courts have been reluctant to dismiss cases without recourse over a patent licensee's lack of standing, unless the defendant establishes harm resulting from a dismissal without prejudice. Textile, 134 F.3d at 1485. See Maupin v. Yamamoto, 2000 WL 1861830 at *2 (W.D. Va. 2000); Alcatel USA, Inc. v. Orckit Communications, 2000 WL 502846 at *4 (N.D. Cal. 2000).
- Under the APA, the defendant waives the right to challenge non-jurisdictional standing issues, often referred to as 'prudential standing,' if not raised before trial. Duty Free, 88 F.3d at 1048. As previously stated, supra, some expansion beyond the APA exists in the Fifth and Seventh Circuits. See Ensley, 171 F.3d at 318; Lindley, 889 F.2d at 129.
- As subsequently discussed in Intellectual Property Dev., the licensor's retention of the power to limit the licensee's pursuit of the case results in the licensee's lack of independent standing.
- In the extreme, such a provision could allow a licensee to grant a purported infringer a royalty-free sublicense, thereby thwarting the possibility of enforcement by the licensor.Speedplay, 211 F.3d at 1251.
- Although not a presidential decision, McNeilab is instructive for its interpretation of optimal language in a 'right-to-sue' provision.
- In most license agreements, the licensee has a right to make, use, and sell the licensed technology.
- Other licensor-retained rights were held not to diminish the transfer of substantial rights including the right to obtain patents in other countries, a reversionary right in the instance of licensee bankruptcy, and the right to receive infringement damages.Vaupel, 944 F.2d at 870.
- The agreement granted an 'an exclusive license, to make, use and sell the inventions, the right to grant sublicenses, the right to collect monies, damages and/or royalties for past infringement and the right to bring legal action to collect the same.'Intellectual Property Dev., 248 F.3d at 1336. Additionally, the agreement granted IPD the right to take action under the patent in its own name to prevent infringement, or to collect damages for past infringement, or to defend proceedings for revocation in circumstances were the licensor is not a necessary party to that action provided that IPD notifies the licensor in writing. Id.
- Interestingly, these limits on the licensee's ability to independently bring suit did not arise unless the licensor was a 'necessary party' to the legal action. Id. While this was likely the drafter's attempt to transfer litigation control to the licensor if the licensor becomes a party to the suit, it is such a reservation of right that prevents the licensee's independent standing and makes the licensor a 'necessary party.' A licensor cannot have his cake and eat it too in the context of 'right?to?sue' provisions.
- In Vaupel, such a provision allowing the licensor to share in the spoils of litigation did not adversely affect the licensee's independent standing. Vaupel, 944 F.2d at 875.
- While dangerous if one is structuring an agreement to grant independent standing to a licensee, such a restriction on assignment is not necessarily determinative. In Abbott, where the licensee lacked independent standing, and inVaupel, where the licensee had independent standing, such a restriction existed.
- This was true even though the licensor tried to retroactively bestow standing on the licensee by offering to be bound by whatever judgment was reached in the ongoing independent action brought by IPD. Intellectual Property Dev., 248 F.3d at 1337. As discussed, supra, a licensee's independent standing, or lack thereof, is determined by the terms of the licensing agreement when signed. Enzo, 234 F.3d at 1092.
- Such 'joint action' provisions could also result in a loss of independent standing by the licensee if the license is indeterminate regarding who has the power to allow infringement.
- While Intellectual Property Dev. establishes that the licensor cannot retain the power to allow infringement for the licensee to have independent standing, and Speedplayestablishes that the licensee has independent standing if the licensee can permit infringement and the licensor cannot, the case law does not address which party has standing if both can permit infringement.
- Other factor courts have considered include: any conditions precedent (a negative), Vaupel, 944 F.2d at 875; who pays patent maintenance fees (positive if the licensee), Mentor240 F.3d at 1018; a licensor's reservation of the right to inspect the licensee's books (a negative), Speedplay, 211 F.3d at 1252; and the placing of restrictions on the licensee's ability to mark the goods produced under the patent (a negative),Id.