Exclusive Licensee of Expired Patents Has Standing to Sue: Federal Circuit | Practical Law

Exclusive Licensee of Expired Patents Has Standing to Sue: Federal Circuit | Practical Law

In Keranos, LLC v. Silicon Storage Technology, Inc., the US Court of Appeals for the Federal Circuit held that an exclusive patent license transferred all substantial rights in expired patents such that the licensee had standing to sue for past infringement. The Federal Circuit refused to create a new standing test for licenses that transferred rights in expired patents distinct from the current "all substantial rights" test.

Exclusive Licensee of Expired Patents Has Standing to Sue: Federal Circuit

Practical Law Legal Update 3-618-1559 (Approx. 4 pages)

Exclusive Licensee of Expired Patents Has Standing to Sue: Federal Circuit

by Practical Law Intellectual Property & Technology
Published on 17 Aug 2015 • USA (National/Federal)
In Keranos, LLC v. Silicon Storage Technology, Inc., the US Court of Appeals for the Federal Circuit held that an exclusive patent license transferred all substantial rights in expired patents such that the licensee had standing to sue for past infringement. The Federal Circuit refused to create a new standing test for licenses that transferred rights in expired patents distinct from the current "all substantial rights" test.
On August 13, 2015, in Keranos, LLC v. Silicon Storage Technology, Inc., the US Court of Appeals for the Federal Circuit held that a patent-owner transferred all substantial rights to expired patents to its exclusive licensee, such that the licensee had standing to sue without joining the patent-owner (Nos. 2014–1360, 2014–1500, (Fed. Cir. Aug. 13, 2015)).
Keranos, LLC was formed as a Texas corporation on February 10, 2010. Less than a week later, it obtained rights to three expired patents relating to "split-gate" flash memory from United Module Corporation (UMC) through an Exclusive Patent License and Royalty Agreement (license agreement), though UMC continued to hold the legal title to the patents. Two of the patents expired in 2006, and the third in 2008. On June 23, 2010, Keranos sued forty-nine parties in the US District Court for the Eastern District of Texas, alleging that they had infringed the three patents between 2004 and 2008. Keranos did not join UMC as a co-plaintiff.
The defendants argued that Keranos lacked standing, and the suit should be dismissed, because the patents had expired before Keranos acquired them and filed suit. The district court found that the license agreement transferred all substantial rights in the patents, so Keranos had standing to sue for infringement without joining UMC. After a number of procedural maneuvers, the district court also denied Keranos's motions to amend its infringement contentions because:
  • The Eastern District of Texas Local Patent Rules required Keranos to identify infringing products by specific product numbers, rather than by product families, and Keranos failed to do so.
  • Keranos had not demonstrated that it was diligent in searching for and identifying infringing products before it filed its original infringement contentions based on publicly available information.
On appeal, the Federal Circuit reiterated the standard for determining whether an exclusive licensee has standing to sue without joining the patent owner. It explained that the holder of legal title to a patent may make an assignment of all substantial rights under the patent, which:
  • Makes the assignee the effective patentee under 35 U.S.C. § 281.
  • Gives the assignee standing to maintain an infringement suit in its own name.
Further, if an exclusive license transfers all substantial rights in the patent, it operates as an assignment. If the license does not transfer all substantial rights, however, the exclusive licensee may have standing to participate in a patent infringement suit where the patent-owner is a party to that action.
In this case, the Federal Circuit reviewed the license agreement to determine if all substantial rights under the patent were assigned. The Federal Circuit explained that the following factors weighed in favor of finding that Keranos had standing:
  • UMC transferred to Keranos the exclusive rights to:
    • sue and recover for past, present and future infringement;
    • to make, use, import and sell products covered by the patents; and
    • to negotiate and grant sublicenses.
  • UMC did not retain the right to sue accused infringers, and was expressly prohibited from instituting or participating in any law suit related to the patent, or from negotiating or granting further licenses to the patents, absent written authorization from Keranos.
  • UMC transferred to Keranos an exclusive right that gave Keranos a proprietary interest in the patents.
  • The license agreement included a catchall grant of any and all other substantial rights to confer standing and permit Keranos to initiate any actions on its own. It also obligated UMC to ensure Keranos did not lack standing.
Based on these factors, the Federal Circuit affirmed the district court's determination that UMC had transferred all substantial rights to the patent to Keranos, and therefore Keranos had standing to bring the infringement suit.
The Federal Circuit also rejected defendants' argument that UMC had not transferred all substantial rights because the patents had expired when UMC licensed them to Keranos. The Federal Circuit held that there was no reason for a party's standing to turn on whether it enters into an exclusive license with a patent owner before or after a patent expires. The Federal Circuit held that the "all substantial rights" test applies equally to licenses for expired and unexpired patents, refusing to create one test for establishing standing when an unexpired patent has been transferred and a second test when an expired patent has been transferred.
The Federal Circuit also found that the district court acted within its discretion in applying the local patent rules:
  • In refusing Keranos's request to amend its infringement contentions, which would add thousands of additional products not specifically disclosed in the original contentions, because it did not show that it acted diligently in identifying the accused products.
  • By requiring Keranos to identify the accused products by name or model number.
However, the Federal Circuit vacated the district court's order denying Keranos's motions for leave to amend its infringement contentions because information about some allegedly-infringing products was not publicly available, so Keranos's group identifications may have been appropriate. Therefore, the Federal Circuit instructed the district court to consider, on a party-by-party basis, whether Keranos had shown good cause to amend its contentions.