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Patentee Has Standing to Sue After Granting Exclusive License with a Definite Termination Date

January 10, 2006
Burgy, Adriana L.

Decision icon Decision

Last Month at the Federal Circuit - February 2006

Judges: Lourie (author), Archer, and Gajarsa

In Aspex Eyewear, Inc. v. Miracle Optics, Inc., No. 04-1265 (Fed. Cir. Jan. 10, 2006), the Federal Circuit vacated the district court’s dismissal of the action for lack of standing and remanded to determine whether all necessary parties to the action were joined.

Contour Optik, Inc. (“Contour”) owns U.S. Patent No. 6,109,747 (“the ’747 patent”) directed to an improved eyeglass combination. On March 20, 2001, Contour and Chic Optic, Inc. (“Chic”) entered into an agreement entitled “Distribution and License Agreement” of the ’747 patent (“the Contour-Chic agreement”). The Contour-Chic agreement granted to Chic certain rights, including “(1) the exclusive right to make, use, and sell in the United States products covered by the patent, (2) the first right to commence legal action against third parties for infringement of the patent and the right to retain any award of damages from actions initiated by Chic, and (3) a virtually unfettered right to sublicense all of its rights to a third party.” Slip op. at 2. The Contour-Chic agreement also contained a clause that limited the term of the agreement to expire on March 6, 2003, and in noevent later than March 16, 2006. On April 5, 2001, under the agreement, Chic executed a sublicense to Aspex Eyewear, Inc. (“Aspex”) granting to Aspex all of Chic’s rights under the Contour-Chic agreement. On March 28, 2001, before the execution of the sublicense, Aspex and Contour sued Miracle Optics, Inc. (“Miracle”) for infringement of the ’747 patent. The district court granted Miracle’s motion to dismiss the action on the ground that neither Contour nor Aspex had standing to sue as they both lacked “rights of the patentee.”

On appeal, Contour argued that the Contour-Chic agreement did not transfer to Chic all substantial rights under the ’747 patent because the term limit of the agreement shows Contour retained ownership. In contrast, Miracle asserted that such a term limit corresponds to reversionary interests that do not preclude a finding of assignment and added that Chic was expressly given the right to sue for present or future infringements along with unfettered authority to sublicense to the ’747 patent.

Vacating the district court’s dismissal, the Federal Circuit identified that the essential inquiry regarding the right to sue on a patent is who owns the patent, i.e., who has all substantial rights of the patent. In answering this question, the Court acknowledged that while a key factor is often where the right to sue for infringement lies, the dominant factor in this case is the agreement’s term limit. Despite Chic’s right to sue and other numerous rights under the Contour-Chic agreement, the Court found that those rights are only valid for a limited period of time, which would end at a definitive date. Accordingly, Contour would regain those rights transferred to Chic, and Chic would have possessed the rights under the ’747 patent for only a fixed period of years in contrast to Contour’s ownership for the ’747 patent’s remaining term.

In addition, the Court explained that a reversionary interest such as a defeasible event, e.g., a default or bankruptcy, is distinct from having rights for only a limited portion of the patent term. As such, the Court concluded that Chic had an exclusive license for a fixed term that failed to meet the “all substantial rights” standard and thus vacated the district court’s decision that Contour lacked standing.

The Federal Circuit further remanded to the district court the question of whether all necessary parties were joined, namely exclusive licensees, and for the determination of whether Aspex or Chic was an exclusive licensee at the time the complaint was filed.