IP Law Daily Agreement transferred ‘all substantial rights’ in optical disk drive patents, despite restrictions
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Monday, October 3, 2016

Agreement transferred ‘all substantial rights’ in optical disk drive patents, despite restrictions

By Thomas Long, J.D.

An agreement between Samsung Electronics Co., Ltd. and Toshiba Samsung Storage Technology Korea Corp ("TSST-K") effectively transferred to TSST-K "all substantial rights" in four patents related to optical disk drive technology, and TSST-K had standing to sue LG Electronics, Inc. and related entities for allegedly infringing the patents, the federal district court in Wilmington, Delaware, has decided. A provision requiring reversion of patent ownership to Samsung under certain circumstances did not deprive TSST-K of the exclusive right to sue infringers, and a provision limiting TSST-K’s right to sue a certain Samsung licensee did not render the right to sue illusory (Toshiba Samsung Storage Technology Korea Corp. v. LG Electronics, Inc., September 20, 2016, Burke, C.).

Patents-in-suit. TSST-K filed suit against LG Electronics, Inc., LG Electronics U.S.A., Inc., and LG International (America), Inc. (collectively, "LG") for infringement of U.S. Patent Nos. 7,367,037, 6,721,110, RE43,106 and 6,785,065. The patents-in-suit generally concerned disk players or optical recording and reproducing apparatuses.

Transfer agreement. TSST-K had entered into an agreement regarding the patents with Samsung on October 1, 2012, under which Samsung transferred ownership rights in the patents to TSST-K, in exchange for certain consideration. The agreement provided that, if TSST-K ever decided to sell or otherwise give up the patents, it was to first notify Samsung of its intentions, and that Samsung would have the right to acquire by assignment—at no charge—the assigned patents. A later amendment to the agreement added a "grant back and covenant" provision.

Motion to dismiss. LG moved to dismiss the suit, arguing that TSST-K lacked standing to sue for infringement of the patents-in-suit. LG asserted that because Samsung retained the rights to practice the patents, license the patents, and reacquire the patents at no cost, the parties to the agreement did not intend to transfer ownership of the patents-in-suit to TSST-K. TSST-K contended that it had standing to sue LG because it obtained all of Samsung’s right, title, and interest in the patents.

"All substantial rights." At any given time, the court noted, a patent has only one owner with "all substantial rights" in that patent; only that owner has standing to sue infringers in its own name. According to the Federal Circuit, the phrase "all substantial rights" meant the rights sufficient for the licensee or assignee to be deemed the effective patentee under Section 281 of the Patent Act. Several factors can affect the analysis—including the transferee’s right to sublicense, any provisions related to reversion of rights to the transferor, and the duration of the rights granted—but the most important factor was the nature and scope of the transferee’s right to bring suit against accused infringers.

TSST-K’s right to sue. The parties disagreed as to the effect of the agreement’s grant back and covenant provision. In that provision, the court said, it was clear that TSST-K was covenanting not to sue certain entities for infringing the assigned patents. In the court’s view, the provision was ambiguous with respect to which entities that TSST-K had covenanted not to sue. The provision referred to "future licensees" of Samsung’s, which LG argued gave Samsung the right to license the assigned patents. TSST-K argued that this language referred to one specific company to which Samsung was then contemplating granting a future license to practice Samsung’s own patents. TSST-K proffered parol evidence to clarify the meaning of the grant back and covenant provision. Declarations of TSST-K’s director of IP and legal and Samsung’s vice president of IP supported TSST-K’s contention that the provision referred to only one specific company and Samsung’s own patents. The court therefore adopted TSST-K’s interpretation of the language.

The agreement made it clear that TSST-K had the exclusive right to bring suit, the court determined. The agreement did not state that Samsung retained any right to sue. The grant back and covenant provision did not render TSST-K’s right to sue illusory. Considering the parol evidence with respect to the scope of the provision, it appeared that LG could not be a "future licensee" of Samsung excluded from TSST-K’s right to sue. Even if LG fit within the potential scope of the "future licensee" language, the provision also stated that any entity that had asserted patent rights against TSST-K could not assert the benefit of the covenant. LG had brought patent infringement claims against TSST-K in 2012. Accordingly, nothing in the covenant barred TSST-K’s claim of standing.

TSST-K’s right to assign or transfer. LG asserted that the right to transfer the patents was not conveyed to TSST-K because the agreement gave Samsung a right of first refusal if TSST-K decided to sell, assign, or otherwise transfer the patents-in-suit. The court disagreed. Although the restriction on transfer was significant, the agreement allowed TSST-K to transfer the patents in some situations; specifically, as long as Samsung declined to exercise its right to reacquire the patents, TSST-K could proceed with a transfer or sale. In addition, TSST-K could sublicense the patents free from the restriction on outright transfers. Accordingly, the court concluded that the agreement transferred all substantial rights in the patents-in-suit to TSST-K, thereby giving it standing to sue LG for infringement. The motion to dismiss was denied.

The case is No. 1:15-cv-00691-LPS.

Attorneys: Thomas C. Grimm (Morris, Nichols, Arsht & Tunnell LLP) for Toshiba Samsung Storage Technology Korea Corp. Mary Matterer (Morris James LLP) for LG Electronics Inc., LG Electronics U.S.A. Inc., and LG International [America], Inc.

Companies: Toshiba Samsung Storage Technology Korea Corp.; LG Electronics Inc.; LG Electronics U.S.A. Inc.; LG International [America], Inc.

MainStory: TopStory Patent DelawareNews

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