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If you just have the right to sue under a patent, don't expect to actually be able to sue anyone
September 20, 2007

Yesterday, the Federal Circuit clarified the requirements for a party to attain standing to bring a patent infringement suit when the party does not hold all substantial rights in the patent. In defining what constitutes an "injury in fact" under the constitutional standing requirement, the court held that, when a party does not have all substantial rights to a patent, injury in fact would only exist when that party has exclusionary rights like those held by an exclusive licensee and the parties with all substantial rights in the patent join in the suit.This was a problem in this case. As the result of a bankruptcy proceeding, one entity was granted the right to sue under certain patents, but another entity was granted ownership of the patents, and had the right to license the patents. The court held that the party with the right to sue did not suffer an "injury in fact," and so could not properly be a plaintiff to the suit. This, of course, leads to a problem: If the party with the right to sue cannot, under the law, actually bring suit, who can enforce the patent? Based on this decision, it appears the only way to cure this problem is to transfer the right to sue back to a party who would suffer an "injury in fact," and until that is done, the patent is unenforceable because neither the owner nor the party with the "right to sue" can actually bring suit. This is an issue that should be kept in mind not only in bankruptcy proceedings, but also in patent licenses and assignments.More detail of Morrow v. Microsoft Corp. after the jump.In 2001, At Home Corp. (AHC) went through a bankruptcy proceeding wherein three trusts were created to receive AHC's assets, rights, and obligations: General Unsecured Creditors' Liquidating Trust (GUCLT), At Home Liquidating Trust (AHLT), and Bondholders Liquidating Trust (BHLT). In particular, GUCLT was given the right to bring suits on AHC's intellectual property against any party other than AHC's controlling shareholders. AHLT was transferred all other rights except the right to bring suit against AHC's controlling shareholders, including the exclusive right to license, make, use and sell AHC's intellectual property rights (although it cannot make, use, or sell the patented invention itself). AHLT was set up to be a transitionary trust, and GUCLT and BHLT were given future beneficiary interests of AHLT once it finished winding up AHC's business.In 2003, Hank Spacone, as the trustee of GUCLT, filed suit against Microsoft Corp. alleging infringement of a patent originally owned by AHC. Microsoft filed a summary judgment motion alleging that GUCLT lacked standing to sue, and Spacone filed a cross-motion that standing did exist. The district court granted Spacone's motion, specifically applying bankruptcy law principles in order to determine if Spacone had standing to sue. In 2006, Microsoft file a motion for summary judgment of non-infringement and invalidity, which the district court granted. When Spacone appealed this decision, Microsoft cross-appealed the district court's determination of standing.

On appeal, the Federal Circuit first addressed the fact that the district court had used bankruptcy-law principles to determine the standing issue. The court, analogizing the Supreme Court decision in Crown Die & Tool Co. v. Nye Tool & Mach. Works, noted that "patent rights are not acquired unless authorized by and acquired in the manner prescribed by statute." Thus, "[w]here parties have contractually divided patent rights, we have analyzed standing to file the infringement suit under patent law principles." Therefore, the court went on to apply patent law principles to determine standing instead of bankruptcy principles. The court then stated that, to have standing to bring suit under patent law principles, GUCLT must meet the constitutional and prudential standing requirements. To meet the constitutional requirements, "a plaintiff must allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Noting that only the issue of "injury in fact" was dispositive in this case, the court found that only the parties holding "exclusionary rights to the patent suffers legal injury in fact under" the patent statutes. These parties would include (1) the patentee or assignee of all "substantial rights," or (2) a party that holds "exclusionary rights" but not all substantial rights as long as the owner of the patent rights was joined in the suit. Parties in category 1 have standing to bring suit alone, while parties in category 2 have standing only if the party with "all substantial rights" joins the suit. A third category of parties, namely those with less than "all substantial rights," and no exclusionary rights, do not suffer an "injury in fact," and thus are not proper plaintiffs to a patent infringement suit, even when the patent owner is joined. The most frequent type of category 3 party is a nonexclusive licensee.In this case, the court held that GUCLT's rights were restricted because it had no right to license, sublicense, make, use, or sell the patented invention. Thus, GUCLT's rights were not exclusionary, and GUCLT was therefore a "category 3" party and did not have injury in fact to confer standing. The court noted that "[f]or any suit that GUCLT brings, its [only] grievance is that the exclusionary interests held by AHLT are being violated," which was not enough to obtain standing, even when AHLT was joined as a co-plaintiff. The court also stated that GUCLT's future beneficial ownership interest in AHLT was not enough to establish that GUCLT suffered an injury in fact. In doing so, the court held that "equitable title to the patent is insufficient to confer standing to sue for legal relief from infringement." Thus, only when a party currently holds all substantial rights in a patent or exclusionary rights in a patent and joins with the owner of all substantial rights can the constitutional requirement for standing be met. The court went on to state that because GUCLT did not have standing, it would not address GUCLT's appeal of the grant of invalidity.

Judge Prost
dissented. She argued that the majority opinion had narrowly construed the rights required to determine if a party has injury in fact without any reasonable basis. She argued that GUCLT met the constitutional standing requirement because AHLT merely existed for the benefit of GUCLT and BHLT, and that AHLT required the consent of GUCLT and BHLT to sell or otherwise dispose of the patent. Moreover, AHLT did not have right to enforce the patent alone and would have to join GUCLT as a co-plaintiff to bring a patent-infringement suit. Thus, the trust "arrangement clearly places less restriction on GUCLT and demonstrates that GUCLT is the party controlling litigation, including settlement of the litigation through licensing."

Judge Prost
felt the exclusionary rights should be evaluated on more than just whether a party has the right to practice or license an invention. She felt that, looking at the broader range of factors, GUCLT did suffer an injury in fact because (1) it holds an equitable interest in the title of the patent as beneficiary of AHLT, (2) it has the explicit right to suit as part of the bankruptcy agreement, and (3) AHLT's actions regarding transfer of rights had to be approved by GUCLT. In support of this finding, Judge Prost noted that this case "does not implicate the perils associated with" relaxing the standing requirements, namely that "multiple plaintiffs may subject a defendant to suit for the same conduct, or that the patentee may miss an opportunity to defend against invalidation," because AHLT had not been granted right to sue under the bankruptcy agreement. The majority's holding leads to the curious result that the party who holds the right to sue under this patent lacks standing to bring such a suit. As a result, until the right to sue is "reunified" with some exclusionary right, the patent is essentially unenforceable.To read the full decision in Morrow v. Microsoft Corp., click here.

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