Exclusive Licensee Without All Substantial Rights Can Independently Sue Patent Owner for Infringement

Authored by R. Benjamin Cassady, D. Brian Kacedon, and John C. Paul 

Abstract

The rights of licensees to sue for patent infringement are limited. Even exclusive licensees generally lack standing to sue others for patent infringement unless the license grants all substantial rights in the patent, or they get the cooperation of the patentee. That is not to say that exclusive licensees can never enforce their rights in a licensed patent without the patentee. They can, but only if needed to prevent an absolute failure of justice. Patentees who give away limited licenses don’t get a free pass either—if they encroach on an "exclusive" right they granted to a licensee, they may wind up accused of infringing their own patent.

Duckweed USA, Inc. obtained a license on a patent related to producing "a cost effective, clean, and renewable petroleum oil substitute from algae, waste water or vegetable oils," and proceeded to develop facilities using this technology.  

Rudolph Behrens, the inventor of the patent, had other ideas. He and others attempted to take over Duckweed’s development projects through their company B.E.A.R. Oceanics and to convince Duckweed’s investors to leave Duckweed and to back BEAR instead.

In response, Duckweed filed suit against Behrens for patent infringement¹. Behrens countered by asking the court to dismiss the suit, claiming that Duckweed lacked standing to sue the inventor for infringing the inventors own patent. However, the court did not dismiss the suit because it found that a license agreement between Duckweed and Behrens did, in fact, allow Duckweed to sue Behrens for patent infringement.

The Duckweed Decision

Whether a licensee has standing to sue for patent infringement depends on the scope of the license. A "bare" licensee—one that receives no more from the patentee than a promise not to be sued for infringement—has no standing to sue others for infringing the licensed patent. An "exclusive" licensee that has received “all substantial rights,” on the other hand, may sue for patent infringement in its own name.  But an “exclusive” licensee with anything less than "all substantial rights" typically may sue only as a co-plaintiff with the patentee, with at least one exception—to prevent a failure of justice, such as when the patentee infringes their own patent. Within that framework the court analyzed a license agreement between Duckweed and Behrens, referred to as the "Resolution." The "Resolution" gave Duckweed a license to "exclusively develop, market and license commercial synfuel feedstock facility(s)" using the patented technology. Although this license was an exclusive right and Duckweed was an exclusive licensee, the court found that the rights received by Duckweed did not include “all substantial rights” under the patent—the full complement of rights typically necessary to sue in its own name.  

But while the law would typically prevent a licensee without "all substantial rights" from suing others for patent infringement without participation by the patent owner, the court went on to find that Duckweed’s situation was an exception to the rule. As an exclusive licensee, Duckweed must be able to prevent Beherens, the patent owner, from infringing Duckweed's exclusive right in order to avoid "an absolute failure of justice."  Accordingly, the Court found that Duckweed had standing to sue Behrens for patent infringement and permitted Duckweed’s infringement suit against Behrens to continue.

Strategy and Conclusion

As the Duckweed case indicates, patent licensees receive rights on a spectrum ranging from "bare" licenses that merely guarantee licensees freedom from a patent infringement suit, to full, exclusive licenses containing "all substantive rights" under the patent, including the right to sue others. Many licenses fall somewhere in between the bare license and the full, exclusive license, so parties should consider their possible future activities and the impact of the license’s terms on those activities. For example, licensors who grant any exclusive rights should consider whether they intend to practice those rights in the future—otherwise they may be accused of infringing their own patent. Likewise, licensees should consider the limits of their license—if they acquire less than the full exclusive rights to the patent, they may not be able to enforce their rights except in rare situations.

Endnotes
¹ The Duckweed opinion may be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/DuckweedUSAvBehrenspaed215cv0538735.pdf.