Patent Assignee Could Not Sue for Patent Infringement Because the Original Patent Owner Reserved the Right To Sublicense the Infringer

Abstract

A Massachusetts court found that Uniloc lacked the ability to sue a defendant that could have obtained a license from a different party. IBM assigned the patents at issue to Uniloc, and under the agreement, IBM reserved the right to sublicense the patents to “Strategic Partners.” Because the defendant was a strategic partner as defined by the agreement, it could have obtained a license from IBM and thus, Uniloc has no right to exclude the defendant and sue for infringement.

Background

Uniloc sued Paychex for infringement of two patents it acquired from IBM. The assignment agreement between IBM and Uniloc reserved the right for IBM to sublicense the patents to its “Strategic Partners.” The contract defined strategic partners to include

any customer of IBM or any of its subsidiaries that has purchased, or executed one or more contracts for purchase of, IBM’s or any of its Subsidiaries’ products or services where the gross purchase price of such products or services is or was at least $10,000,000.00 (cumulative) over the five-year period prior to the Effective Time & Date.

After identifying that Paychex purchased more than a redacted amount worth of IBM products during the pertinent time period, Paychex sought to dismiss the case arguing that the sublicensing rights IBM retained prevented Uniloc from receiving sufficient exclusionary rights in the patent to bring suit for infringement (“standing to sue”).

The Uniloc Decision

Generally, only parties that possess exclusionary rights in a patent can sue for infringement of that patent because such parties are the only ones injured by someone violating that exclusivity.  For example, exclusive licensees typically can sue for infringement because they possess such an exclusionary interest (an expectation of exclusivity).  But if an infringer can obtain a license from someone other than the exclusive licensee, the exclusive licensee no longer has any expectation of exclusivity as to that infringer.  Thus, the infringement does not injure the exclusive licensee and the exclusive licensee will typically lack the ability to sue such an infringer.

Here, while Uniloc received an assignment instead of an exclusive license, Uniloc’s assignment was subject to IBM’s sublicensing rights.  Paychex alleged that Uniloc could not sue it for infringement because Paychex had the ability to obtain a license from IBM as its “Strategic Partner.” Thus, Uniloc did not have sufficient exclusionary rights with respect to Paychex.

Uniloc argued that Paychex was not considered to be an IBM strategic partner because all but $1.5M of Paychex’s purchases were made from IBM resellers (instead of directly from IBM or its subsidiaries). Uniloc also argued that an addendum to a different assignment contract with IBM signed one year later identified Paychex in a list of companies not considered an IBM Strategic Partner.

 The court agreed with Paychex, indicating that the original patent assignment contract was the best evidence to prove intent. And that assignment agreement did not require a “strategic partner” to buy directly from IBM. Also, the court did not find the addendum to be persuasive as it was attached to a different agreement. As a result, the court granted Paychex’s motion to dismiss Uniloc’s patent infringement claims.

Strategy and Conclusion

Before filing a patent infringement complaint, you should determine whether infringers can obtain a license to the patent from another party. This point is particularly true for patent owners who obtained rights to a patent through an assignment from a prior owner who retained the right to license the patent.

Further Information

 The Uniloc decision can be found here.