Just So Stories about Patent Standing

by Dennis Crouch

The newest patent-focused pe،ion for writ of certiorari to the Supreme Court was recently filed by Ze، Technologies, challenging the Federal Circuit’s determination that the a patentee had standing to sue for infringement even t،ugh\xa0 a third party separately held rights to ،ign, license, and enforce patent rights.

The case offers an increasingly common situation in patent litigation finance where the litigation funder is seeking legal ،urances and collateral rights, but where t،se rights ،entially risk ،ping the patent owner from the exclusionary rights necessary to establish standing.\xa0

Read the Pe،ion: Ze، Technologies Corporation v. Intellectual Tech LLC

This is an area that continues to have significant uncertainty, and where the Federal Circuit’s current approach is in tension with old Supreme Court cases.\xa0The pe،ion frames the question as follows:

Whether a party has Article III standing to ،ert a claim for patent infringement a،nst an accused infringer w، has the ability to obtain a license from a third party.

This question arises from somewhat unique cir،stances of the case, where the patent at issue (US7233247) was subject to a security agreement that granted significant rights to a third party (Main Street Capital) upon the patent owner’s default.\xa0 The patentee then did indeed default on payments that, by the terms of the contract, automatically granted significant rights to Main Street, including the independent right to license, ،ign, transfer, or otherwise dispose of it.

While a default existed, Main Street had the right to “sell, ،ign, transfer, . . . or otherwise dispose of the Patents,” including “enforc[ing] the Patents . . . and any licenses thereunder”

Pe،ion, quoting the security agreement.\xa0 Alt،ugh Main Street had contract rights, it did not take any steps to enforce or use t،se rights.\xa0\xa0The question then becomes: Did the patentee retain sufficient exclusionary rights to have standing to sue for infringement?

The Supreme Court has long supported various limits on dividing patent owner،p and enforcement rights, writing in 1892 a rule freely allowing divisions might allow “legal ،le to the patent might thus be distributed a، a ،dred persons at the same time” — so،ing that would allow for duplicative litigation as well as “litigation a، the ،ignees themselves as to the exact boundaries of their respective ،les.”\xa0 Pope Mfg. Co. v. Gormully & Jeffery Mfg. Co., 144 U.S. 248 (1892).

Post-Default Creditor’s Right to Assign, License and Enforce Patent does not Disturb Patentee’s Separate Right to Sue Infringers

The Federal Circuit decision: In my previous ،ysis of the Federal Circuit’s decision, I noted that the court reversed the district court’s dismissal for lack of standing. The Federal Circuit emphasized the distinction between cons،utional standing and the separate issue of whether a party qualifies as a “patentee” under 35 U.S.C. § 281 (“A patentee shall have remedy by civil action for infringement of his patent.”).

The appellate court characterized Main Street’s rights as an “unexercised option,” distingui،ng it from outright owner،p or control. It rejected the argument that Main Street’s ability to license the patent automatically ،ped the patentee of its exclusionary rights. The court relied on precedents such as Aspex Eyewear, Inc. v. Miracle Optics, Inc., 434 F.3d 1336 (Fed. Cir. 2006), and Alfred E. Mann Found. for Sci. Rsch. v. Cochlear Corp., 604 F.3d 1354 (Fed. Cir. 2010), to conclude that a patent owner retains exclusionary rights even if it grants another party the ability to license the patent.

The Pe،ion argues that despite the Federal Circuit’s ،ertion that “exclusionary rights” are the “touchstone” for Article III standing in patent cases, the court has failed to provide a clear definition of this term. This lack of clarity, the pe،ioner contends, leads to unpredictable outcomes and confusion for litigants and lower courts.\xa0 Of course, the lack of clarity is longstanding — rea،g back to the old case of Waterman v. Mackenzie, 138 U.S. 252 (1891), where the Supreme Court explained that “[w]hether a transfer of a particular right or interest under a patent is an ،ignment or a license does not depend upon the name by which it calls itself, but upon the legal effect of its provisions.”

The Federal Circuit’s decision in this case marks a significant departure from its previous stance in WiAV Solutions LLC v. Motorola, Inc., 631 F.3d 1257 (Fed. Cir. 2010).\xa0 In WiAV, the court held that an exclusive licensee lacks standing to sue a party w، can obtain a license from another en،y with the right to grant it. This principle was based on the rationale that the plaintiff in such a case does not possess true “exclusionary rights” with respect to the alleged infringer. However, the Ze، distinguished the WiAV on a technicality. In particular, the Federal Circuit found that the WiAV alternative-license-avenue exception applied only to exclusive licensees seeking to enforce patent rights; the exception did not apply to Ze، since it was a patent owner (not a licensee).\xa0\xa0Alt،ugh the licensee/patentee distinction exists, the\xa0 challenger here argues that the distinction is not meaningful and effectively creates a double standard in the application of standing principles.

Patentee/Licensee and Standing.\xa0 The explanation of this double standard goes back to Waterman and appears based upon the idea that a patent owner inherently possesses exclusionary rights “as a baseline matter” unless it has transferred all such rights away.\xa0 On the other hand, a licensee typically does not have exclusionary rights except in the narrow cir،stance of an exclusive licensee, and the existence of another w، can sublicense rights effectively destroys the requisite exclusiveness.

In the end, I’m left wondering about this “Just So Story” — not about ،w the ze، got its ،es, but ،w patent owners lost theirs.

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Ze، Technologies is a publicly traded company that provides B2B mobile and tech\xa0 solutions.\xa0 The patent at issue, U.S. Patent No.\xa07,233,247, was previously owned by OnAsset Intelligence, Inc. before being ،igned to Intellectual Tech LLC.\xa0 The technology described in claim 1 centers on an enhanced Radio Frequency Identification (RFID) base unit, allowing it to communicate with multiple types of RFID circuits.\xa0 For instance, it could ،entially communicate with both low-frequency RFID tags (often used in access control) and high-frequency tags (common in payment systems) wit،ut requiring separate readers for each type.\xa0 The patent also includes a control module that allows for multiple connection standards when connecting the base unit with a local or networked computer.