Exclusive Patent Licensees Lack Standing to Sue for Infringement Without the Patent Owner if the License Agreement Contains a Fixed Term that Expires Before the Term of the Licensed Patent and the Licensor Retains a Reversionary Interest

Authored by Mindy L. Ehrenfried, D. Brian Kacedon, and John C. Paul

A party who is not a patentee—the entity to whom the patent issued, or the patentee's successor in title—typically lacks standing to file a patent infringement suit. An exception to this general rule applies, however, when a patentee has granted another entity an exclusive license. In such case, the exclusive licensee may have standing to sue alone or jointly with the patentee.

Whether the exclusive licensee can sue alone depends on whether it received "all substantial rights" in the asserted patent or patents by virtue of the license grant. The analysis of whether an exclusive licensee possesses "all substantial rights" necessarily involves a determination of what rights were granted to the licensee and what rights were retained by the patentee. Among the rights that courts often consider important in determining whether "all substantial rights" have been granted to a licensee include the right to sue for infringement, the right to indulge infringement by choosing not to sue, and the right to assign the rights it received under the patent.

In MOSAID Technologies Inc. v. Freescale Semiconductor, Inc., No. 6:11-cv-173 (E.D. Tex. May 14, 2012),¹the United States District Court for the Eastern District of Texas granted-in-part and denied-in-part the defendant's motion to dismiss a patent infringement claim brought by an exclusive licensee for lack of standing. Specifically, the court found that the exclusive licensee lacked "all substantial rights" under the patents-in-suit and provided ten days for the original patent owner to join as a plaintiff.

Background

MOSAID filed a patent-infringement suit against Freescale Semiconductor, Interphase, and NVIDIA, asserting seven U.S. patents. MOSAID had licensed five of those seven patents from LSI Logic ("the LSI patents") in 2007. The license agreement granted MOSAID a ten-year license to the LSI patents, after which all licensed rights would revert to LSI. The license agreement contained an extension-of-rights provision that applied if litigation involving the LSI patents was ongoing at the end of the ten-year term. But the extension of rights applied only to the potential licensees and the LSI patents at issue in the ongoing litigation. Because of the fixed-term nature of the license agreement—which the defendants used as evidence that MOSAID lacked substantial rights in the LSI patents and therefore lacked standing to bring suit—the defendants moved to dismiss MOSAID's complaint for lack of subject-matter jurisdiction.

The MOSAID Decision

Analogizing to an earlier Federal Circuit case, the district court agreed with the defendants' argument. In Aspex Eyewear, Inc. v. Miracle Optics, Inc., the Federal Circuit held that a fixed-term exclusive license, with reversionary rights to the patent owner, was not a transfer of all substantial rights in the patent. In this case, the district court found MOSAID similarly did not have all substantial rights in the LSI patents because of LSI's reversionary interest. The court remained unmoved by MOSAID's attempts to distinguish its license agreement from the Aspex agreement. Specifically, although MOSAID's license agreement provided for an extension of rights, that extension applied only to the potential licensees and the specific LSI patents embroiled in the ongoing litigation when the fixed term expired. All other rights would revert to LSI. Thus, the court reasoned, during such an extension period, MOSAID would not have all substantial rights in the LSI patents because, in that situation, only LSI (and not MOSAID) would be able to initiate an infringement suit based on the LSI patents. LSI's reversionary interest, the court concluded, prevented MOSAID from satisfying the prudential-standing requirement. Rather than dismiss the suit, however, the court provided ten days for LSI, which the court deemed a necessary party, to join as a plaintiff and cure MOSAID's lack of standing.

Strategy and Conclusion

Even if a patent license agreement grants a licensee the right to sue infringers, obtain damages from infringement, and license the patent, the licensee may nevertheless lack standing to file an infringement suit without the patentee if the license agreement contains a fixed term that is shorter than the life of the patent and the licensor retains a reversionary interest in the patent. Thus, even if parties to an agreement intend to permit the licensee to sue in the licensee's own name, other terms of the agreement may, as a matter of law, preempt that right.

Endnotes
¹When this article was published, the MOSAID decision was not made publicly available.