No Standing to Sue for Infringement When Patent Rights are Assigned to Another: Federal Circuit | Practical Law

No Standing to Sue for Infringement When Patent Rights are Assigned to Another: Federal Circuit | Practical Law

In Azure Networks, LLC v. CSR PLC, the US Court of Appeals for the Federal Circuit affirmed the US District Court for the Eastern District of Texas' dismissal of co-plaintiff Tri-County Excelsior Foundation from the patent infringement suit because Tri-County lacked standing to sue after it assigned its rights to Azure Networks.

No Standing to Sue for Infringement When Patent Rights are Assigned to Another: Federal Circuit

by Practical Law Intellectual Property & Technology
Published on 10 Nov 2014 • USA (National/Federal)
In Azure Networks, LLC v. CSR PLC, the US Court of Appeals for the Federal Circuit affirmed the US District Court for the Eastern District of Texas' dismissal of co-plaintiff Tri-County Excelsior Foundation from the patent infringement suit because Tri-County lacked standing to sue after it assigned its rights to Azure Networks.
On November 6, 2014, the US Court of Appeals for the Federal Circuit issued an opinion in Azure Networks, LLC v. CSR PLC, affirming the district court's dismissal of co-plaintiff Tri-County Excelsior Foundation because Tri-County lacked standing to sue for patent infringement after it assigned away its rights (No. 2013-1459, (Fed. Cir. Nov. 6, 2014)).
In 2010, Azure Networks, LLC donated US Patent No. 7,756,129 ('129 patent) to Texas non-profit corporation Tri-County so that Tri-County could join in its patent enforcement activities. Soon after Azure donated the '129 patent to Tri-County both parties entered into an exclusive patent license agreement which transferred back to Azure a number of rights in the '129 patent, including the exclusive worldwide, transferable right to:
  • Make, have made, use, sell, offer to sell, import and lease any products.
  • Use and perform any method, process or service.
  • Otherwise practice any invention in any manner under the '129 patent.
  • Enforce or sublicense the '129 patent, including the authority to reach settlements without Tri-County's consent.
  • Maintain, enforce or defend the '129 patent so long as Azure exercises good faith business judgement to monetize the patent, including but not limited to licensing it to third parties.
  • Assign the entire agreement or any of Azure's other rights under the agreement without Tri-County's consent under certain circumstances.
  • Control future prosecution or pay maintenance fees related to the '129 patent.
Under the agreement, Tri-County received:
  • The right to receive 33% of the proceeds from Azure's litigation or licensing activities for the first five years and then 5% thereafter.
  • A royalty-free, personal, non-transferable, non-exclusive right to practice the '129 patent and make Tri-County branded products.
  • The right to terminate the agreement if Azure breached its obligations or if Tri-County's obligations put its tax-exempt status at risk.
  • Reversionary rights in the '129 patent once the agreement expires.
Although the patent would not expire until the year 2020, the parties agreed the agreement would expire automatically on March 27, 2018 and that Tri-County would have the option to renew the agreement in one-year increments.
When Azure and Tri-County filed suit together against CSR for patent infringement, CSR moved to dismiss Tri-County from the case arguing the agreement transferred all of the significant rights to Azure leaving Tri-County with no rights to sue as a co-plaintiff. The US District Court for the Eastern District of Texas agreed with CSR and found that Tri-County's title in the patent and financial and reversionary interests were not enough to confer standing to sue.
On appeal, the Federal Circuit considered whether:
  • Tri-County transferred all substantial rights under the '129 patent to Azure making Azure the effective owner of the patent.
  • If so, whether Tri-County can join in an infringement suit brought by Azure, a licensee who is now the effective owner.
In an effort to determine whether Tri-County transferred all substantial rights, the Federal Circuit considered the following non-exhaustive list of rights under the agreement:
  • The nature and scope of the right to bring suit.
  • The exclusive right to make, use and sell products or services under the patent.
  • The scope of Azure's right to sublicense.
  • The reversionary rights to Tri-County after the termination or expiration of the license.
  • Tri-County's right to receive a portion of the proceeds from litigating or licensing the patent.
  • The duration of the license rights.
  • Tri-County's ability to supervise and control Azure's activities.
  • Tri-County's obligation to continue paying maintenance fees.
  • Any limits on Azure's right to assign its interests in the patent.
In concluding that Azure acquired significant rights to the '129 patent under the agreement, the Federal Circuit focused on Azure's exclusive right to sue, exclusive license and its freedom to sublicense. In particular, the court noted:
  • Although Tri-County has a right to receive a portion of the proceeds from the enforcement of the '129 patent, an economic interest alone does not defeat a transfer of substantial rights.
  • The fact that Tri-County retained the right to practice the '129 patent held little weight as Tri-County does not make or sell any products and there was no evidence that Tri-County would make or sell products in the future.
  • Although the court held in Propat International Corp. v. RPost, Inc. that termination rights which are conditioned on a failure to perform up to specified benchmarks can indicate that a licensor retained ownership in the patent, the Propat termination right is not present here (473 F.3d 1187 (Fed. Cir. 2007)). Instead, Tri-County's right to monitor whether Azure breached any of its obligations did not rise to Propat levels as Tri-County could not veto any of Azure's decisions and it did not have the right to receive notice before Azure acted.
  • The fact that the agreement automatically terminated two years before the patent's expiration but included two one-year renewal options indicated that Tri-County intended to transfer all substantial rights to the patent for the duration of the patent.
Because the court determined that Tri-County transferred all substantial rights to Azure, the court held that Tri-County did not then have standing to join the suit as a co-plaintiff and adding Azure to the suit could not cure this deficiency in standing.