Federal Circuit Wades Into Article III Standing in Patent Cases Once Again
Federal Circuit Wades Into Article III Standing in Patent Cases Once Again
In the precedential decision of Intellectual Tech LLC v. Zebra Techs. Corp.,[1] the U.S. Court of Appeals for the Federal Circuit reversed a ruling from the U.S. District Court for the Western District of Texas[2] that dismissed a patent infringement claim for lack of constitutional standing under Article III. The Federal Circuit found that the patent owner had standing to file a patent infringement suit even though the patent owner defaulted on a security agreement that granted a third party the ability to license the patent at issue because the patent owner nonetheless retained an exclusionary right in the patent.
In 2011, OnAsset granted a security interest in U.S. Patent No. 7,233,247 (“the ’247 Patent”) to Main Street Capital Corporation (“Main Street”) as part of a loan agreement (“OnAsset-Main Street Agreement”).[3] OnAsset defaulted on the OnAsset-Main Street Agreement in 2013[4] and in 2017, OnAsset and Main Street entered into a forbearance agreement.[5]
In 2017, OnAsset formed Intellectual Tech LLC (“IT”) as its subsidiary and assigned the ’247 Patent to IT.[6] In the same year, IT entered into a patent and trademark security agreement with Main Street (“IT-Main Street Agreement”), granting Main Street a security interest in the ’247 Patent.[7] In 2018, IT defaulted.[8]
The OnAsset-Main Street Agreement and the IT-Main Street Agreement (“the Agreements”) have “mirrored” terms.[9] As such, Main Street’s default rights were the same whether assessed based on OnAsset’s 2013 default or IT’s 2018 default. In general, the Agreements allow OnAsset or IT to “control and manage . . . the right to exclude others from making, using or selling items covered by the Patents and Trademarks and any licenses thereunder.” However, in the event of a default, the Agreements allow Main Street the option of selling, assigning, transferring, or otherwise disposing of the ’247 Patent and/or enforcing the ’247 Patent.[10]
IT sued Zebra Technologies (“Zebra”) for infringing the ’247 Patent.[11] Zebra moved to dismiss for lack of standing,[12] which the district court denied, concluding that IT was the rightful owner and thus had standing to file suit against Zebra.[13]
Zebra renewed its standing arguments in a motion for summary judgment for lack of subject matter jurisdiction, arguing that “OnAsset’s 2013 default divested OnAsset of its rights in the ’247 Patent, making the 2017 assignment to IT ineffective.”[14] The district court rejected this argument, explaining that, upon OnAsset’s default, Main Street was afforded the option of selling, assigning, transferring, or otherwise disposing of the ’247 Patent.[15] However, there was no indication that Main Street exercised this option.[16]
The district court granted Zebra’s renewed motion as to Article III standing because the fact that Zebra could obtain a license on the ’247 Patent from Main Street deprived IT of all its exclusionary rights.[17] Though the district court acknowledged that the Agreements may be construed such that they do not give Main Street a right to license, the court seemed to conclude that Main Street’s ability to assign, and Zebra’s theoretical ability to obtain title from such an assignment, had the same impact on the standing analysis as Main Street having “an unconditional right to license.”[18] In sum, the court determined that Main Street’s right to license deprived IT of Article III standing, even though Main Street had not exercised this right.[19]
IT appealed.
On appeal, the only question before the Federal Circuit was whether IT demonstrated the minimum of an injury-in-fact for constitutional standing.[20] Constitutional standing under Article III requires a party to show it has “(1) suffered an injury-in-fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.”[21] The injury-in-fact must be present at the inception of the lawsuit and is an “actual or imminent” “concrete and particularized” “invasion of a legally protected interest.”[22] The Federal Circuit noted that an injury-in-fact requires only “that IT retained an exclusionary right—i.e., infringement would amount to an invasion of IT’s legally protected interest.”[23]
As an initial point, the Federal Circuit emphasized that Article III standing is a jurisdictional requirement and is incurable if absent at the initiation of the lawsuit.[24] In contrast, the issue of whether a party qualifies as a “patentee”[25] under 35 U.S.C. § 281 (e.g., whether the statutory requirements of 35 U.S.C. § 281 are met) is not a jurisdictional requirement[26] and is a defect curable by joinder.[27]
Turning to the issue on appeal, Zebra argued that Main Street’s ability to license the ’247 Patent deprived IT of all exclusionary rights because (1) Main Street had the exclusive ability to license upon default, thus depriving IT of all exclusionary rights, and (2) even if both Main Street and IT had the ability to license upon default, Main Street’s non-exclusive ability to do so still divested IT of all exclusionary rights.[28]
The Federal Circuit rejected Zebra’s first argument, noting that the mere triggering of Main Street’s option under the Agreements did not automatically deprive IT of all its rights.[29]
Zebra’s second argument that the non-exclusive ability to license stripped IT of all exclusionary rights relied on the court’s decision in WiAV Sols. LLC v. Motorola, Inc.[30] However, the Federal Circuit distinguished from WiAV, noting that at issue in WiAV was whether the license was an exclusive license or a bare license that only contained a promise not to sue the licensee for practicing the patented invention.[31] Moreover, the court in WiAV rejected the notion that a licensee must be the only party with the ability to license in order to constitute an exclusive licensee.[32]
The Federal Circuit emphasized the criticality of the licensee-versus-patentee distinction between WiAV and the instant case, stating “[a] patent owner has exclusionary rights as a baseline matter unless it has transferred all exclusionary rights away.”[33] In contrast, a “licensee ordinarily obtains freedom from suit but does not necessarily obtain an interest in preventing others from practicing the patent.”[34] The court concluded that Main Street and IT’s shared ability to license while a default existed did not divest patent owner IT of all exclusionary rights, noting that IT still suffers an injury-in-fact from infringement even if Main Street and IT can both license the patent.[35] Zebra also argued that even if both Main Street and IT had the ability to license upon default, Main Street’s non-exclusive ability to do so still divested IT of all exclusionary rights pursuant to the Agreements granting the option to “sell, assign, transfer, . . . or otherwise dispose of” the ‘247 Patent.[36] In rejecting this argument, the Federal Circuit explained that Main Street’s unexercised option to assign was not a present divestment of IT’s exclusionary rights.[37] “Whatever role another entity’s ability to license has in the Article III inquiry for a patent owner, it is clear that assignment must be evaluated based on the actual transfer of rights, not mere ability.”[38] (emphasis added). The Federal Circuit concluded that because Main Street did not exercise any options under the Agreements, IT was not presently divested of all exclusionary rights.[39]
Article III standing can differ from the statutory requirements of 35 U.S.C. § 281 in patent cases. In certain instances, a secured creditor can obtain rights that become actionable only upon default, which may include the ability to license or enforce a patent. However, these rights may not necessarily correspond to patent ownership. Because Article III standing must exist when a case is filed, parties planning to file a complaint should consider the issue carefully beforehand.
[1] Intellectual Tech LLC v. Zebra Techs. Corp., No. 2022-2207 (Fed. Cir. May 1, 2024).
[2] Intellectual Tech LLC v. Zebra Techs. Corp., No. 6:19-cv-00628-ADA, 2022 WL 1608014 (W.D. Tex. May 20, 2022).
[3] See Intellectual Tech LLC, 2022-2207, slip op. at 3.
[4] See id.
[5] See id. See also Intellectual Tech LLC, 2022 WL 1608014, at *1.
[6] See Intellectual Tech LLC, 2022-2207, slip op. at 3.
[7] See id.
[8] See Intellectual Tech LLC, 2022 WL 1608014, at *3–4.
[9] See id., at *3.
[10] See Sections 3(j), 6(b), and 6(c) of the Agreements.
[11] See Intellectual Tech LLC, 2022 WL 1608014, at *1.
[12] See Intellectual Tech LLC, 2022 WL 1608014, Dkt. 68.
[13] See Intellectual Tech LLC, 2022 WL 1608014, Dkt. 75.
[14] See Intellectual Tech LLC, 2022 WL 1608014, at *3.
[15] See id.
[16] See id.
[17] See id., at *4.
[18] See id., at *5–7.
[19] See id., at *7.
[20] See Intellectual Tech LLC, 2022-2207, slip op. at 8–9.
[21] See Intellectual Tech LLC, 2022 WL 1608014, at *1. See also Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016); Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992).
[22] See Lujan, 504 U.S., at 560.
[23] See Intellectual Tech LLC, 2022-2207, slip op. at 9.
[24] See id.
[25] See 35 U.S.C. § 100(d). See also Intellectual Tech LLC, 2022-2207, slip op. at 9.
[26] See Intellectual Tech LLC, 2022-2207, slip op. at 10. See also Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., 925 F.3d 1225, 1235 (Fed. Cir. 2019) (“[Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014)] is irreconcilable with our earlier authority treating § 281 as a jurisdictional requirement.”); Schwendimann v. Arkwright Advanced Coating, Inc., 959 F.3d 1065, 1071 (Fed. Cir. 2020) (“[Lone Star] recognized that intervening Supreme Court precedent made clear that our earlier decisions treating the prerequisites of the Patent Act as jurisdictional were wrong.”).
[27] See Intellectual Tech LLC, 2022-2207, slip op. at 11. See also Lone Star Silicon Innovations LLC, 925 F.3d, at 1235–36.
[28] See Intellectual Tech LLC, 2022-2207, slip op. at 11.
[29] See id., slip op. at 11–12.
[30] WiAV Sols. LLC v. Motorola, Inc., 631 F.3d 1257 (Fed. Cir. 2010).
[31] See Intellectual Tech LLC, 2022-2207, slip op. at 13. See also WiAV Sols. LLC, 631 F.3d, at 1267 (where the Federal Circuit determined that WiAV’s sole ability to practice and sublicense within its licensed subfield was sufficient to demonstrate that its license had conferred an exclusionary right and, as a result, infringement within that subfield amounted to an injury-in-fact); Alfred E. Mann Found. for Sci. Rsch. v. Cochlear Corp., 604 F.3d 1354, 1361 (Fed. Cir. 2010) (concluding that the patent owner had not transferred away all rights, even under an exclusive license with rights to sublicense, where the patent owner retained the right to sue).
[32] See Intellectual Tech LLC, 2022-2207, slip op. at 13–14.
[33] See id., slip op. at 14.
[34] See id.
[35] See id.
[36] See id., slip op. at 11.
[37] See id., slip op. at 15.
[38] See id. See also Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1364–65 (Fed. Cir. 2010) (evaluating whether rights transferred automatically or were set to transfer at some point in the future); Cent. Admixture Pharmacy Servs., Inc. v. Advanced Cardiac Sols., P.C., 482 F.3d 1347, 1352–53 (Fed. Cir. 2007) (holding that the plaintiff had Article III standing even where the government had “discretionary authority to take title” to the asserted patent because the government “ha[d] shown no interest” in doing so (emphasis in original)).
[39] See Intellectual Tech LLC, 2022-2207, slip op. at 16.
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