IP Law Daily Assignee could not bring infringement claims without all substantial rights in patent
Friday, May 31, 2019

Assignee could not bring infringement claims without all substantial rights in patent

By John W. Scanlan, J.D.

The Federal Circuit ruled that its previous caselaw holding that the requirements of Sec. 281 were jurisdictional was inconsistent with the U.S. Supreme Court’s 2014 ruling in Lexmark.

A patent assignee could not bring patent infringement claims on its own because the transfer agreement did not transfer all substantial rights in the asserted patents, the U.S. Court of Appeals for the Federal Circuit ruled in affirming in part a decision by a federal district court in California. However, the district court erred in finding that the assignee lacked standing to proceed. The dismissal was vacated and remanded for the district court to consider whether the transferor must be joined (Lone Star Silicon Innovations LLC v. Nanya Technology Corp., May 30, 2019, O'Malley, K.).

Advanced Micro Devices, Inc. ("AMD") is the patentee for several patents. AMD entered into an agreement with Lone Star Silicon Innovations LLC that purported to transfer all right, title, and interest in these patents to Lone Star. As part of this agreement, Lone Star agreed to assert the patents only against unlicensed third-party entities specifically listed in the agreement. Both AMD and Lone Star would have to agree in order to add additional entities; if Lone Star were to sue an unlisted entity, AMD would have the right to sublicense the patents to that entity. The agreement also allows AMD to prevent Lone Star from assigning the patents to anyone else or allowing them to enter the public domain. Finally, AMD and its customers may practice the patents and AMD would share in any revenues Lone Star obtains from monetizing the patents.

Lone Star brought patent infringement claims against Nanya Technology Corp., Nanya Technology Corp. U.S.A., and Nanya Technology Corp. Delaware ("Nanya’), as well as United Microelectronics Corp. and UMC Group (USA) ("UMC"), all of which are licensed third party entities under the agreement. The district court dismissed the claims, finding that AMD had not transferred all substantial rights in the patents to Lone Star and, therefore, Lone Star could not bring suit without AMD. The district court denied Lone Star’s request to join AMD because it would "reward" Lone Star for its "litigation gimmick" and unfairly prejudice the defendants. Lone Star appealed.

All substantial rights. The Federal Circuit agreed that the agreement had not transferred all substantial rights to Lone Star. Although Lone Star contended that the agreement’s broad conveyance of "all right, title, and interest" in the patents was dispositive, this argument ignores the total effect of the agreement, which includes provisions that "substantially curtail" Lone Star’s rights. Previous Federal Circuit caselaw has found that restrictions on a transferee’s enforcement of rights without the consent of the transferor, as well as restrictions on a transferee’s assignment of patents without consent, weigh against a finding of transfer of all substantial rights. Because Lone Star cannot file suit against unlisted entities without AMD’s consent, and because AMD can grant a sublicense to negate a suit against an unlisted entity, Lone Star does not have the right to sue for all infringements. Lone Star argued that restrictions on suing unlisted entities were irrelevant in this case because all defendants were listed unlicensed third party entities, but the court reasoned that the fact that AMD had transferred only some rights meant that it had not transferred all substantial rights in the full scope of the patent.

Furthermore, the agreement provides that AMD may prevent Lone Star from transferring the patents to a buyer unless the buyer agrees to be bound by the same restrictions that bind Lone Star, meaning that AMD always will control how patents are asserted. Additionally, Lone Star must assign the patents to AMD or an agent of AMD’s choice before it may abandon the patents. The provisions giving AMD a share of Lone Star’s monetization of the patents and allowing AMD and its customers to practice the patents also were inconsistent with a transfer of all substantial rights.

Standing. Lone Star had standing to bring its suit without AMD. The defendants argued that Lone Star lacked standing because it had not alleged that it was an exclusive licensee. An entity possessing exclusionary rights in a patent suffers an injury when its rights are infringed, and a court may redress such an injury. Lone Star alleged, and the transfer agreement suggested, that it possessed exclusionary rights. By finding that Lone Star lacked standing without AMD, the district court confused the requirements of Article III to invoke the judicial power under the Constitution with the requirements of Sec. 281 to obtain relief under the patent laws. In Lexmark Int’l v. Static Control Components, Inc., the U.S. Supreme Court stated that defects in so-called "statutory standing" do not implicate subject-matter jurisdiction. Finding that Lexmark could not be reconciled with Federal Circuit authority holding that Sec. 281 is a jurisdictional requirement, the Federal Circuit announced that it would bring itself into accord with Lexmark and sister circuits in ruling that whether a party possessed all substantial rights in its patents does not implicate standing or subject-matter jurisdiction.

Joinder. Finally, the Federal Circuit agreed with Lone Star that because it has standing, it should be given an opportunity to join AMD as a necessary party. Although a licensee cannot bring suit in its own name, an exclusive licensee should be able to join the patent owner to maintain suit, as provided by Federal Rule of Civil Procedure 19. The district court’s refusal to join AMD was inconsistent with Rule 19 and Federal Circuit precedent. Furthermore, even though the district court stated that Lone Star failed to allege that it was an "exclusive licensee," Lone Star had alleged that it possessed exclusionary rights. Therefore, the district court should have joined AMD to cure any defect in Lone Star’s lack of all substantial rights rather than dismiss the case. The Federal Circuit concluded by instructing the district court that it was required to consider on remand whether AMD should be joined, but that it was offering no opinion as to whether it must be or can be joined.

This case is Nos. 18-1581 and 18-1582.

Attorneys: Timothy P. Maloney (Fitch, Even, Tabin & Flannery) for Lone Star Silicon Innovations LLC. Peter James Wied (Nixon Peabody LLP) for Nanya Technology Corp., Nanya Technology Corp. U.S.A and Nanya Technology Corp. Delaware. Christopher Kao (Pillsbury Winthrop Shaw Pittman LLP) for United Microelectronics Corp. and UMC Group [USA].

Companies: Lone Star Silicon Innovations LLC; Nanya Technology Corp.; Nanya Technology Corp. U.S.A; Nanya Technology Corp. Delaware; United Microelectronics Corp.; UMC Group [USA]

MainStory: TopStory Patent FedCirNews

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