Patents Held by Two Wholly Owned Subsidiaries Found Not to Be Commonly Owned by the Parent Company for Purposes of Satisfying Requirements of Terminal Disclaimer

Authored by D. Brian Kacedon; John C. Paul; and Andrew J. Ra, Jr.

In the United States patent system, if a patent application is obvious in light of one of the applicant's existing patents—also known as obviousness-type double patenting—the applicant may be required by the United States Patent and Trademark Office to file a "terminal disclaimer," which has the effect of disclaiming a part of the patent term in order to obtain the patent. When an applicant files a terminal disclaimer to avoid an obviousness-type double-patenting rejection, the second patent expires at the same time as the patent issuing from the applicant's earlier-filed patent application that gave rise to the obviousness-type double-patenting rejection. The applicant also agrees that the second (i.e., later) patent will be enforceable only as long as it is commonly owned with the first (i.e., earlier) patent. According to the law, if the two patents are not commonly owned, then the second patent, which is subject to the terminal disclaimer, is deemed unenforceable.

The U.S. District Court for the District of Nevada recently addressed this issue in Email Link Corp. v. Treasure Island, LLC, No. 2:11-cv-01433-ECRGWF (D. Nev. Sept. 25, 2012)¹. In this case, the defendants moved to dismiss the patent-infringement complaint on the grounds that the asserted patent was unenforceable because it was subject to a terminal disclaimer but was not commonly owned with the earlier patent. Despite the plaintiff's objections, the district court concluded that the asserted patent was unenforceable and granted the motion to dismiss.

The Email Link Decision

The plaintiff, Email Link Corp., sued multiple defendants, alleging infringement of one of its patents—the '176 patent— covering a method of information distribution. The asserted '176 patent issued on November 23, 2010, and listed Email Link as the assignee. Before its issuance, a terminal disclaimer was filed where the alleged owner, Acacia Global Acquisition LLC, disclaimed any statutory patent term that extended beyond the expiration date of an earlier patent—the '789 patent. Email Link acknowledged that it owned the asserted '176 patent and that another entity, Online News Link, LLC, owned the earlier '789 patent. Both Email Link and Online News Link were wholly owned corporate subsidiaries of Acacia.

Soon after the complaint was filed, the defendants jointly moved to dismiss on the grounds that the asserted patent was unenforceable. According to the defendants, because the earlier patent is owned by a party other than Email Link (specifically, Online News Link), the asserted patent is unenforceable as a matter of law. Email Link countered that because Acacia owned both Email Link and Online News Link, the two patents are commonly owned by Acacia and therefore the asserted patent is still enforceable under the terms of the terminal disclaimer.

The district court concluded that the asserted patent was unenforceable. Citing a number of cases, the court concluded that it was a basic tenet of American corporate law that the corporate parent and its subsidiary are considered two separate entities. And it explained that a corporate parent that wholly owns a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary. Specifically in the patent context, the district court found that precedent held that once a parent company assigned a patent to its subsidiary, the parent no longer had rights in the patent, even though it controlled the subsidiary. In view of the case law, the district court concluded that Email Link (and not Acacia) was the owner of the asserted patent. Because the asserted patent and the earlier patent were not owned by the same entity as required by the terminal disclaimer, the district court concluded that the asserted patent was unenforceable as a matter of law and granted the defendants' motion to dismiss.

Strategy and Conclusion

The Email Link decision highlights that courts generally consider parent corporations and subsidiaries to be separate legal entities when determining patent ownership. Patent owners should be aware that a parent company that assigns a patent to its subsidiary may not be considered the owner of the patent, even if the parent company wholly owns the subsidiary. As demonstrated in Email Link, in the context of a patent subject to a terminal disclaimer, this can mean that the patent will be deemed unenforceable if different entities own the asserted patent and the earlier patent.

Endnotes

¹ The Email Link decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2012/12.04.2012-Email_Link_v_Treasure_Island.pdf.

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