Thinking Ahead on Standing: Using Evidence from Outside the License Agreement to Overcome Bare Licensee Status

Standing to sue for patent infringement arises from the Patent Act, which expressly grants patentees and their assignees a remedy by civil action. [35 U.S.C. § 281; 35 U.S.C. § 100(d).] But because patents implicate a bundle of rights, for example, the right to sue, the right to collect past damages, the right to collect future damages, the right to make, use, or sell, etc., the standing analysis can get complicated. Whether standing exists often turns on the number of rights from the bundle that a particular party has, and whether the patent owner is joined in the lawsuit. 

Some parties have no more than a promise from the patentee not to be sued for infringement. Such parties are called “bare” licensees and, absent exceptional circumstances, have no standing to sue for infringement. Other parties, in contrast, are exclusive licensees with “all substantial rights” in the patent. Such parties may sue in their own name. In between bare licensees and exclusive licensees with all substantial rights falls a third category of licensee: exclusive licensee with less than all substantial rights. An exclusive licensee with less than all substantial rights has standing to sue as long as the patent owner also is a party in the lawsuit. 

When determining which category a licensee falls into, litigants often focus on how the license agreement defines the parties (e.g., as an exclusive or nonexclusive licensee), and how the agreement allocates various patent rights. While license agreements can certainly be relevant in the standing analysis, litigants should know that, even when a license agreement defines a party as a bare licensee, evidence from outside the license agreement can be used to elevate that licensee to the next category—the level where a party can sue with the patent owner. 

For example, in Schneider (Europe) AG v. Scimed Life Systems, Inc. [No. 3-91 CIV 241, 1993 WL 463204 (D. Minn. May 14, 1993)], an American subsidiary and European parent were co-plaintiffs. Schneider (Europe) was the patent owner, and Schneider (USA) was defined by the license agreement as a “nonexclusive” or bare licensee. While Schneider (Europe)’s independent standing was undisputed, the court analyzed whether the license agreement’s characterization of Schneider (USA) as a “nonexclusive” licensee meant that the US subsidiary lacked standing to sue, even as a co-plaintiff with the patent owner. 

The court looked beyond the “nonexclusive licensee” label and the license agreement itself to find that that Schneider (USA) possessed sufficient rights to sue as a co-plaintiff. In particular, the court considered that the companies did not compete in each other’s respective markets, were owned by the same parent company, and operated in tandem with each other as part of a network aimed at marketing the patented products worldwide. The Federal Circuit affirmed the district court’s ruling, finding that the district court correctly looked outside the terms of the license agreement to focus on the parties’ (1) corporate structure, (2) intent while executing the agreement, and (3) conduct under the agreement. [Schneider (Europe) AG v. SciMed Life Sys., Inc., 60 F.3d 839, at *3 (Fed. Cir. 1995) (unpublished).] 

In Ropak Corp. v. Plastican, Inc. [04-C-5422, 2005 WL 2420384, at *4 (N.D. Ill. Sept. 30, 2005)], the court held that a licensee had standing to sue as a co-plaintiff despite the fact that the licensor previously had issued a non-exclusive license because the licensee had received an express promise that others would be excluded. In Cognex Corp. v. Microscan Sys., Inc. [13-CV-2027 JSR, 2014 WL 2989975, at *5 (S.D.N.Y. June 30, 2014)], the court found that, despite the lack of a written license agreement, the parent corporation for a patent-owning subsidiary was an exclusive licensee and thus had standing to bring suit. The court rejected arguments attempting to disregard the corporate relationship between the licensing parties and emphasized evidence showing that the decision to bring the lawsuit was made within the licensee-parent corporation and that the licensee-parent  corporation had set the licensing policy for the subsidiary’s entire intellectual property. 

In sum, a party labeled by a license agreement as a nonexclusive, or bare, licensee should look beyond the four corners of the agreement to other evidence proving that it has more rights than the license agreement shows. Such evidence can elevate the licensee to a status where it has standing to sue with the patent owner. Keep in mind, however, that courts often allow challengers to raise standing issues late in a case. Bare licensees should anticipate such late standing challenges and preemptively put the evidence into the case that helps improve their standing position.