January 8, 2013
Commercial Times
By E. Robert Yoches; Ming-Tao Yang
Authored by Ming-Tao Yang and E. Robert Yoches
In an ideal world, a company has amassed an arsenal of patents so it is prepared when competitors sue or others seek license fees or damages. We do not live in an ideal world, and many companies find that when they most need a patent, they do not have the right ones. Sometimes, companies do not file patent applications; sometimes they enter a field too late to get effective protection; sometimes the company’s patents are unhelpful because the other company uses a different technology.
The most popular way to build a portfolio quickly is to buy patents. Buying can be expensive and difficult because good patents are rare.
Recently, some companies and organizations are promoting the concept of “borrowing” patents by obtaining the rights to a patent for use in a lawsuit, and then return the patent to the original owner. Borrowing patents is a creative solution to the portfolio-building issue. It suffers, however, from fundamental problems of standing. There is yet no effective way to arrange such a transaction under the current law.
A party must have “standing” to bring suit in the United States. Only a party that has suffered an injury can use the courts, and this requirement of an “injury” is critical to analyzing standing. For patent cases, the party with standing is the one with the necessary “exclusionary rights” of a patent.
Two categories of parties (other than the original inventor(s) before transferring rights) have the right to sue in patent cases. One category includes the parties (individuals or companies) who own all rights, or all substantial rights, to a patent. These parties include assignees and some exclusive licensees. They can sue in their own name.
Those in the second category receive fewer than all substantial rights, but have enough exclusionary rights to have standing. Those in the second category have no independent standing to sue unless they join the patent owner as a party.
In contrast, a bare or nonexclusive licensee only has the right to practice the patent, but no right to exclude others. A bare licensee has no standing to sue, even if it joins the patent owner. The line between a bare licensee and one with exclusive rights is blurry. For example, a license is not exclusive when the patentee reserves certain rights, such as the right to grant licenses or to recall ownership of the patent if certain conditions occur. These parties cannot sue, because they lack the exclusionary rights that another party may have violated.
To determine standing, a court must ascertain the intention of the parties to an agreement and examine the substance of the transferred and retained rights. Courts must ensure that the plaintiff has sufficient rights to avoid the defendant having to face multiple lawsuits over the same patent, which can occur if the party suing does not have all substantive rights.
Courts have wrestled with the question of whether a borrowing arrangement transfers enough rights to confer a standing to sue on the recipients. If it does not, the borrowed patents are essentially worthless.
In Taiwan, the government has considered an “IP bank” to help Taiwan companies in certain industries defend themselves against patent infringement claims. In one proposal, the IP bank would own a number of patents and lend them to Taiwan companies to use in litigation. The details are unclear, but the ownership of the patents would presumably revert to the IP bank.
Whether the organization would be public or private, it may still face the key problem that “borrowing patents” requires the receiver to return them. That feature, as many cases below show, may defeat standing for the recipients.
Patent aggregators acquire patents for various reasons, but principally to keep those patents from competitors of the aggregators’ members and from nonpracticing entities (NPEs) that might use the patents to extract royalties. Some companies join a patent aggregator because the cost of membership is less than the cost of litigating or licensing these patents. The aggregators, by removing patents from circulation, eliminate the possibility of a lawsuit from such patents.
One problem with this business model, however, is that removing a patent from circulation benefits nonmembers as well as members. The nonmembers are therefore avoid lawsuits without contributing to contribute to the aggregators.
Aggregators have discussed whether to offer members other benefits, such as allowing members to use the acquired patents. For example, Intellectual Ventures, a large patent aggregator, assigned a patent in 2010 to Verizon to use in a patent fight with TiVo. It is not clear whether this was an outright assignment, or whether Verizon may have to return the patent to the assignor.
Some plaintiffs have sought to acquire patent rights to sue for patent infringement, only to find their cases rejected because of burdens on the transfer. Plaintiffs often lack the necessary standing to sue when they 1) share some right with another, such as the right to license, the right to seek damages, or some control over enforcement; 2) are obligated to return the patents or subject to future restrictions, such as conversion of rights or prohibition against sale; 3) simply do not have the rights they thought they have.
Using two patents from ITRI in Taiwan, A10 Networks, Inc. sued Brocade Communications Systems, Inc. in 2011. The court dismissed A10’s suit, because A10’s agreement with ITRI did not include the transfer the rights to damages for past infringement. As a result, A10 could not continue its infringement case against Brocade without joining the prior owners.
Enhanced Security Research similarly failed in pursuing its case against IBM, Cisco, and others for infringement of two patents relating to network security. Although Enhanced Security obtained the legal title and the right to sue, another company, Security Research Holdings, has the right to initiate, manage, and settle enforcement efforts relating to those patents. As a result, a Delaware court found that Enhanced Security lacks the standing to sue.
Separately, because “borrowed” patents need to be returned, there can be restrictions on one’s patent rights in the future, which may also preclude a borrower from suing. Pfizer Ireland Pharmaceuticals and Pfizer Ltd. sued Teva Pharmaceuticals USA Inc. in 2010 for infringement of a patent related to a drug for treating impotence. Although Pfizer Ireland is an exclusive licensee, it lacked standing to sue because patent owner Pfizer Ltd. retained a right of conversion that can covert the exclusive license to a nonexclusive one and because Pfizer Ireland’s right to sue arises only after Pfizer Ltd. fails to sue.
A final example involves Google. Before HTC and Apple resolved their disputes, Google assigned some of its patents to HTC. The ITC (United States International Trade Commission) let HTC proceeds with its suit against Apple for several patents, but not the patents from Google, even though Google retained only limited rights, such as rights in sublicensing others. Although Apple raised the same challenge in a Delaware court, the court did not rule on the issue before HTC and Apple reached a resolution.
One footnote to this issue is the situation that ensues when a party learns it does not have the rights it thought it had. In 2009, Abbott Point of Care Inc. sued its competitor Epocal, Inc. for infringement of two patents covering systems for testing blood samples. Abbott claimed ownership through its predecessor’s agreements with an employee-consultant. Apparently unknown to Abbott, the inventor Dr. Lauks only assigned his rights when he was an employee with Abbott’s predecessor, but not when he later became a consultant. An Alabama court found that Abbott had no standing to sue because it did not have the proper ownership rights.
In 2011, MOC Products similarly failed in its patent infringement claim against Illinois Tool Works because MOC was only an exclusive licensee of a joint owner. Under the patent law, patent co-owners are free to license the patent to others without the permission of other co-owners (and without having to account to others for any income). MOC had no right to preclude another party from granting a license, so it had no standing to sue.
Thus far, no court in the United States has found that a party borrowing a patent—i.e., leaving substantial rights with the previous owner—conferred standing on the party. Until there is a way to do so consistent with the law, borrowing patents is not an effective strategy.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
Lecture
Patent Protection for Software-Related Inventions in Europe and the USA Training Course
June 5, 2024
Hybrid
10th Annual Georgia Asian Pacific American Bar Association Gala
May 29, 2024
Atlanta
Due to international data regulations, we’ve updated our privacy policy. Click here to read our privacy policy in full.
We use cookies on this website to provide you with the best user experience. By accepting cookies, you agree to our use of cookies. Please note that if you opt not to accept or if you disable cookies, the “Your Finnegan” feature on this website will be disabled as well. For more information on how we use cookies, please see our Privacy Policy.
Finnegan is thrilled to announce the launch of our new blog, Ad Law Buzz, devoted solely to breaking news, developments, trends, and analysis in advertising law.