To Confer Standing, Assignment Must Transfer Entire Exclusive Right

McDermott Will & Emery

McDermott Will & Emery

Addressing the issue of standing, the US Court of Appeals for the Federal Circuit affirmed a district court’s dismissal of a patent case brought by an exclusive licensee, finding that the original assignee had not transferred all substantial rights to the patents-in-suit to the plaintiff, and thus the plaintiff alone did not have standing to sue. Diamond Coating Technologies, LLC v. Hyundai Motor America, et al., Case No. 15-1844 (Fed. Cir., May 17, 2016) (Wallach, J).

The patents-in-suit list Sanyo as the original assignee. Diamond Coating Technologies and Sanyo signed a “Patent Assignment and Transfer Agreement” whereby, among other things, (1) Diamond could not assign the agreement to another party without Sanyo’s consent; (2) Sanyo retained an economic interest in future proceeds, including any that arise from infringement litigation; (3) Sanyo retained a license to make, use and sell products covered by the patents-in-suit; and (4) Diamond must act in the best interest of both Sanyo and Diamond when making decisions on enforcement.

On Hyundai’s motion, the district court dismissed the action, finding that the agreement did not confer patentee status on Diamond and thus Diamond could not bring suit without joining Sanyo. The district court also found that nunc pro tunc agreements executed by Diamond and Sanyo after dismissal could not be used to support retroactive standing. Diamond appealed.

The Federal Circuit explained that to create a standing, a contract must transfer “the entire exclusive patent right,” and that an agreement that fails to do so is merely a license. The court noted that it has not allowed labels to control by treating bare formalities of “title” transfer as sufficient to determine that an “assignment” of the entire exclusive right has occurred. Rather, a determination of whether a transfer of rights is an assignment or a license requires an examination of the substance of what was granted.

Noting that the exclusive right to make, use and sell is “vitally important” to the determination, the Federal Circuit concluded that the agreement between Sanyo and Diamond constituted a mere license because Sanyo retained significant rights. Finally, the Court held that nunc pro tunc assignments are not sufficient to confer retroactive patentee status, and that Sanyo and Diamond’s second agreement that attempted to “clarify the parties’ original intent” but was entered into after the district court dismissed the original suit did not factor into the determination.

Practice Note: When a defendant is confronted by a non-practicing entity suit where standing is alleged based on an agreement between it and the original patent owner, the agreement should be carefully analyzed to determine if there are standing defects, especially in cases where the original patent owner is not a party to the lawsuit.


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