Federal Circuit Review - Issue 278

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278-1. Federal Circuit Remands Patent Infringement Case to Answer Patent Ownership and License to Practice Questions

The Federal Circuit recently vacated a grant of summary judgment of non-infringement of a patent, remanding the case for further factual development regarding (1) whether a co-owner of the patent waived its right to refuse to join the suit, and (2) whether the defendant received a license to practice the invention from the patent owner. The Court noted that, if the theory of liability under federal patent law fails, the five state law claims must proceed in the state courts. See AntennaSys , Inc. v. AQYR Techs., No. 2019-2244, 2020 U.S. App. LEXIS 32186 (Fed. Cir. Oct. 7, 2020) (Before O’Malley, Bryson, and Reyna, Circuit Judges) (Opinion for the Court, O’Malley, Circuit Judge).

Windmill International, Inc. (Windmil) and AntennaSys, Inc. (AntennaSys) became co-owners of U.S. Patent No. 7,432,868 via assignment by the two inventors of the patent. After the patent issued, Windmill and AntennaSys entered into a license agreement, wherein Windmill received an exclusive license to AntennaSys’ 50% interest in the patent as co-owner. The license agreement required Windmill to create an LLC, owned entirely by Windmill, to hold both the license and Windmill’s interest in the patent.

The license agreement also required certain minimum sales by Windmill. If Windmill failed to meet certain minimum sales, then the license was revoked, allowing both co-owners to license their 50% interest as if the license agreement never existed. Either party could also then sue third-party infringers. Windmill subsequently failed to meet the minimum sales numbers, and AntennaSys filed suit.

Plaintiff AntennaSys originally sued AntennaSys’ wholly-owned subsidiary, AQYR Technologies, Inc. (AQYR), for patent infringement. An arbitration for state law claims was also filed against Windmill, and the parties agreed to combine the two actions and proceed in federal court at the District of Delaware. The claims consisted of state law claims against AQYR and Windmill (defendants), and the single patent infringement claim against AQYR. After the court completed claim construction, AntennaSys moved for summary judgment of noninfringement. The district court concluded that, without the federal claim, the state claims failed, and thus entered a judgment for AQYR and Windmill. AntennaSys appealed.

The Court noted that a co-owner of a patent must be included as a plaintiff unless one of two exceptions are met: (1) “when any patent owner has granted an exclusive license, he stands in a relationship of trust to his licensee and must permit the licensee to sue in his name;” and (2) “[i]f, by agreement, a co-owner waives his right to refuse to join suit, his co-owners may subsequently force him to join in a suit against infringers.”

The defendants argued that AntennaSys lacked standing without Windmill as a plaintiff. However, the Court urged that failure to meet a statutory cause of action, for example under 35 U.S.C. § 262, did not arise to “lack of standing” under Article III since the requirements under § 262 are not jurisdictional. As such, the issue was whether AntennaSys met the statutory requirement to bring the patent infringement suit by addressing the question of whether AntennaSys could bring the infringement suit against AQYR either because Windmill wasn’t joined as co-plaintiff or if AQYR actually held a license, negating any claim under the patent act.

Regarding the exceptions above, the Court considered whether Windmill had waived its § 262 joinder challenge under Rule 12(b)(6) since they must be raised in the first responsive pleading or motion for judgment on the pleadings. The Court deferred these questions to the district court because they would be moot if AQYR had a right to practice the patented invention, and nothing in the record indicated that AQYR waived its right to raise this defense.

The Court then addressed the parties’ substantive arguments on the requirement of joinder. The defendants argued that the exceptions above do not apply — (1) AntennaSys did not license the patent from Windmill, and (2) Windmill never waived its right to proceed in the case against its subsidiary. AntennaSys argued that this case required a different approach because public policy considerations allowed AntennaSys to continue since Windmill would not incur duplicate liability, and it would not sue its own subsidiary. Once again, the Court noted that these confusing arguments may prove meritless if it determined Windmill had the right to license the patent to AQYR.

The record also failed to mention any rights held by the LLC to hold Windmill’s license and 50% patent rights. According to the record, Windmill provided a license to the LLC, GBS Positioner, so it should be a co-owner of the patent. Since no record of the interaction between GBS Positioner and AQYR existed, the Court remanded to the case to the district court to consider (1) whether Windmill waived its right to object to joinder, (2) who owned the 50% interest in the patent, and (3) whether there was a license to AQYR.

The Court next addressed the state law claims. If the federal claim failed, then the federal district court may lack subject matter jurisdiction. That said, some instances — even where the federal hook failed — will not prevent a federal court from hearing state law claims, such as when “a federal law issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” (quoting Gunn v. Minton, 568 U.S. 251, 258 (2013)). The Court noted that AntennaSys at least failed the “substantial” prong since patent infringement merely applies facts to federal law. “This case does not present a context-free interpretation of a patent statute, but requires merely that the court apply patent law to the facts of the case.”

In so holding, the Court vacated and remanded for further consideration of the ownership and licensing questions. “[I]f the patent infringement count is dismissed, this case belongs in state court.”

Since ownership, either by actual ownership or exclusive license, is important in determining who may be required as a plaintiff, the chain of rights must be clear on the record to confirm that the case should not be dismissed under 35 U.S.C. § 262.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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