PATENT CASE OF THE WEEK
Lone Star Silicon Innovations LLC v. Nanya Technology Corporation, Appeal No. 2018-1581, -1582 (Fed. Cir. May 30, 2019)
In the only precedential patent case this week, the Federal Circuit addressed whether a party who is not a patentee or an exclusive licensee has standing to sue for patent infringement.
Advanced Micro Devices, Inc. (“AMD”), the original assignee of the patents-in-suit, entered into an agreement with Lone Star that purported to transfer “all right, title and interest” in the patents to Lone Star. However, the agreement limited Lone Star’s rights in several ways, including allowing AMD to control how Lone Star asserts or transfers the patents, prohibiting Lone Star from practicing the patents, and allowing AMD to share in monetization efforts. Based on these limitations, the district court concluded that Lone Star did not obtain all rights in the patents, and therefore could not sue in its own name. As such, the district court dismissed the cases, even though Lone Star had asked to join AMD as a necessary party under FRCP 19. As to the joinder request, the district court concluded that allowing Lone Star to join AMD so that it could continue its lawsuit would unfairly prejudice defendants.
On appeal, Lone Star argued that (1) it possessed all substantial rights in the asserted patents and therefore can assert them in its own name; and if it cannot, (2) it must be given the opportunity to join AMD as plaintiff before the case is dismissed.
As to whether Lone Star obtained all substantial rights in the patents, such that it could bring an action for patent infringement, the Court analyzed whether, based on the totality of the agreement, Lone Star was an assignee who obtained all substantial rights in the patents, or a mere licensee.
Licensees may only bring suit if they possess “exclusionary rights.” In those cases, the patentee who transferred the exclusionary rights is usually joined pursuant to FRCP 19. Lone Star argued that it should be able to sue in its own name based only on a single provision in the agreement that conveyed “all right, title and interest” in the patents, and in the alternative that it obtained all substantial rights in the patents with respect to the alleged infringers here. The Court held that Lone Star was not granted all substantial rights in the patents because the single clause it relied on ignores the total effect of the agreement, and the Court refused to be “so reliant on labels.” Lone Star’s ability to enforce and alienate the patents-in-suit was instructive to the Court. For instance, Lone Star needs AMD’s consent to file suit against entities not specifically listed in the agreement; as such, Lone Star did not possess the right to sue for “all infringement.” Further, Lone Star’s ability to transfer the patents is restricted by the agreement—AMD is allowed to withhold its consent if Lone Star’s potential buyer does not agree to be bound by the same restrictions as Lone Star. The Court found that this restriction made it such that AMD will always control how the patents are asserted, which is “fundamentally inconsistent with a transfer of all substantial rights.” Thus, based on the totality of the agreement, the Court held that Lone Star cannot assert the patents in its own name.
As to whether Lone Star has Article III standing, the Court disagreed with appellees’ argument that because Lone Star is not a patentee and never alleged it was an exclusive licensee, Lone Star lacks standing. The Court held that the transfer agreement, referenced in Lone Star’s complaints, suggests that Lone Star does have such exclusionary rights, even if limited; and even if Lone Star did not specifically allege it was an exclusive licensee, “constitutional standing also does not depend on labels.” The Court also held that the district court erred in finding that Lone Star lacked standing to proceed without AMD because that finding confuses the requirements of Article III (establishing when a plaintiff may invoke judicial power) with those of section 281 (establishing when a party may obtain relief under the patent laws). Since the Supreme Court recently clarified that “statutory standing” (i.e., whether a party can sue under a statute such as section 281) defects do not implicate a court’s subject matter jurisdiction, the Court here held that section 281 is not a jurisdictional requirement, and concluded that whether a party possesses all substantial rights in a patent does not implicate standing or subject-matter jurisdiction. As such, Lone Star’s allegations, although failing to satisfy statutory standing, do satisfy Article III.
Finally, as to whether Lone Star should have had the opportunity to join AMD as a necessary party before the case was dismissed, the Court agreed with Lone Star that Rule 19 compels that result. The Court explained that Rule 19 requires a district court to engage in a two-step inquiry to determine whether a case should (a) proceed or (b) be dismissed, if a party, whose joinder is required, cannot feasibly be joined. The Court stated that it made little sense to ignore Rule 19 here because Lone Star brought suit thinking it was the patentee and turned out to be wrong; joinder would ensure that the resulting judgment affords complete relief between AMD, Lone Star, and appellees. The Court further held that the district court’s dismissal was inconsistent with Rule 19 and precedent, especially since if AMD is the patentee as the district court found, AMD’s joinder would ordinarily be “required” by Rule 19.
The Court therefore vacated and remanded the district court’s dismissal with an instruction that it consider whether AMD must be joined here.
The opinion can be found here.