Licensee Who Asserts Patent Infringement Without Having Standing to Sue Must Submit to a Deposition on Standing-Related Issues

Abstract

A license agreement did not transfer all substantial patent rights to a licensee asserting patent infringement because it limited the licensee’s right to sue, exclude, assign, and license the licensed patent. In response to a request for sanctions, the court ordered the licensee to submit to a deposition on topics related to its knowledge of issues related to its standing to sue and its decision to assert the disputed patents.

A licensee suing for patent infringement without the patent owner must have "all substantial rights" in the asserted patents, such that the license is essentially an assignment of those patents. A Texas court in Keith Manufacturing Co. v. Cargo Floors B.V. found that a licensee asserting patent infringement did not have sufficient rights to sue based on a license from a holding company that owned the asserted patents. After finding that the licensee lacked standing, the court ordered the licensee to submit to deposition on topics related to its lack of standing and decision to sue on the patents without joining the licensor.

Background

KMC sued Cargo Floor B.V. for infringing patents on conveyer systems in truck trailers. Cargo Floor asserted that KMC did not own the asserted patents because 1) the former KMC president, Keith Foster, was designated as the sole inventor and patentee, 2) there was no record that the patents were assigned to KMC during Foster’s lifetime, and 3) Foster passed away and probate proceedings for his estate were closed. 

KMC claimed it had standing to sue on the patents through a license from a holding company, "Keith Investments," which stood in the position of the owner of Keith Foster’s patents.

The Keith Manufacturing Decision

The court found KMC did not have standing to sue under its own name because the license agreement did not provide KMC with "all substantial rights" for the asserted patents. 

First, KMC did not have the right to exclude others, through suit or otherwise, from making, using, or selling the patented devices. Instead, the license only gave KMC the right to make, use, and sell the devices covered by the patents. 

Second, the license did not grant KMC the exclusive right to sue infringers for past, present, or future infringement. And, under the license, KMC had the right to defend actions against the licensed patents, but was not obligated to do so. KMC could elect not to defend the licensed patents and allow the licensor to defend them instead. 

Third, KMC had no right to assign under the license and that KMC’s right to sublicense under the agreement was uncertain. 

Cargo Floor asked the court to sanction KMC for asserting the disputed patents despite its lack of standing. The court partially granted this request by ordering a corporate designee of KMC to submit to deposition on topics related to KMC’s knowledge of standing issues and its decision to assert the disputed patents.

Strategy and Conclusion

Licensees asserting patent infringement must have sufficient rights in the asserted patents in order to have standing to sue. A court may award sanctions where a licensee fails to adequately investigate issues of standing before filing suit.

The Keith Manufacturing opinion can be found here.