Opinion
No. 1:01 cv 111
May 7, 2002
Steven L. Underwood, Todd A. Van Thomme, Price, Heneveld, Cooper, Dewitt, Et Al, Grand Rapids, MI, Kent, Russell W. Pyle, Michael Piontek, Pyle Piontek, Chicago, IL, For Plaintiff, Fabpro Oriented Polymers, Inc.
Michael D. Wade, Garan, Lucow, Miller Seward, Grand Rapids, MI, Kent, Denis McCormick, For Defendant., McCormick International, L.L.C.
Stephen D. Turner, Law, Weathers Richardson, Grand Rapids, MI, Kent, VFM, Mediator.
Terence J. Linn, Van Dyke, Gardner, Linn Burkhart, LLP, Grand Rapids, MI, Kent, MA Karatzis, SA, (Greece) For Defendant., MA Karatzis, SA, (Florida).
Scott E. Dwyer, Mika, Meyers, Beckett Jones, Grand Rapids, MI, Kent, Synthetic Resources, INC. Pretty Good Twine Company.
Allen Liefer, Synthetic Resources, Inc., Peabody, KS, Fabpro Oriented Poly v. McCormick, Et Al.
OPINION AND ORDER ON PENDING MOTIONS
On February 14, 2001, plaintiff Fabpro Oriented Polymers, Inc. ("Fabpro") filed this action asserting claims of patent infringement. Subsequently, on June 6, 2001, Fabro filed an amended complaint naming additional defendants, one of which, Karatzis S.A. (Greece) ("Karatzis") has moved for dismissal under Fed.R.Civ.P. 12(b) (docket no. 33), arguing, among other things, that Fabpro lacks standing to pursue its claims of infringement because it was not the owner of the patent at the time it filed the action. Defendants Denis McCormick and McCormick International, L.L.C. (collectively "McCormick") and Synthetic Resources, Inc. ("Synthetic") have filed their own motions raising the same argument (docket nos 39 and 48). Fabpro has opposed the motions, and has also filed a motion for leave to file a second amended complaint (docket no. 45) which includes, among other things, an allegation that Fabpro is now the owner of the patent in suit. That motion is also opposed.
For the reasons to follow, the court denies the motion for leave to file a second amended complaint and grants the motions to dismiss for lack of standing. This action is dismissed without prejudice.
I
Fabpro manufactures and sells net wrap for use in making bales of agricultural crops. In its Amended Complaint filed on June 6, 2001, Fabpro alleges that it is the "exclusive licensee" under United States Letters Patent No. 4,569,439 ("the `439 patent"), issued for "Round Bales of Agricultural Blade Crops." The `439 patent was issued in 1986 to the inventors' assignee, a German company then known as Claas OHG. Fabpro alleges that it obtained the rights to its exclusive license in March, 1998, when Fabpro's parent company, Polymer Group, Inc., acquired certain rights to the oriented twine business of Exxon Chemical Company ("Exxon"). Exxon had obtained an exclusive license to make bales under the `439 patent from the original patent assignee, Claas OHG.
The abstract of the patent reads as follows:
A wrapping of netting is disclosed for a round bale of agricultural blade crops. The use of netting as a wrapping permits the elimination of all additional measures for fastening of the wrapping which have so far been customary and necessary with any other wrapping materials.
According to Fabpro, Karatzis and McCormick have imported into the United States net wrap for use in making bales, as called for in one or more of the claims of the `439 patent Fabro also alleges that McCormick has, in turn, both sold the net wrap to Synthetic and others for use in making bales and rented, to others, balers with attachments capable of making bales as called for in one or more of the claims of the `439 patent. Fabpro's Amended Complaint alleges that the defendants' actions constitute infringement under 35 U.S.C. § 271, thus entitling Fabpro to both injunctive relief and damages, including treble damages as provided by 35 U.S.C. § 284.
II
Karatzis was the first to seek dismissal, arguing that because Fabpro did not own the `439 patent it lacked standing to sue in its own capacity for patent infringement. Instead of owning the patent, Karatzis argues, Fabpro's rights were such that the company could only sue the defendants for infringement by joining the patent owner as an indispensable party. McCormick and Synthetic have also asserted lack of standing as one of the bases for dismissal of the claims against them.
The United States Court of Appeals for the Federal Circuit has "exclusive jurisdiction" of an appeal from a district court "if the jurisdiction of that court was based, in whole or in part," on 28 U.S.C. § 1338. 28 U.S.C. § 1295(a)(1); Wang Laboratories, Inc. v. Applied Computer Sciences, Inc., 958 F.2d 355, 357 (Fed. Cir. 1992). Congress conferred exclusive appellate jurisdiction on that court "in order to `provide nationwide uniformity in patent law.'" Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 162 (1989) (citation omitted). This action is based on § 1338. Therefore, this court's guidance on matters of law comes from Federal Circuit authority.
The Federal Circuit applies the law of the regional circuit to which the district court appeal normally lies unless "the issue pertains to or is unique to patent law," in which case the Federal Circuit applies its own law to both substantive and procedural issues "intimately involved in the substance of enforcement of the patent right." Advanced Cardiovascular Sys., Inc. v. Medtronic, Inc., 265 F.3d 1294, 1303 (Fed. Cir. 2001) (citations omitted). Because determining standing to sue in this action involves prudential considerations which are unique to patent law, this court looks to Federal Circuit precedent in making its determination on Fabpro's ability to withstand the defendants' motions for dismissal.
"In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." Warth v. Seldin., 422 U.S. 490, 498 (1975). "Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute," Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994), and "[s]tanding reflects both constitutional limitations on federal court jurisdiction and prudential limitations on its exercise." First Hartford Corp. Pension Plan and Trust v. United States, 194 F.3d 1279, 1290 (Fed. Cir. 1999); see, e.g., Warth., 422 U.S. at 498, 95 S.Ct. at 2205; Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 474, 102 S.Ct. 752, 760 (1982) ("Beyond the constitutional requirements, the federal judiciary has also adhered to a set of prudential principles that bear on the question of standing"). Both dimensions are "founded in concern about the proper — and properly limited — role of the courts in a democratic society." Warth, 422 U.S. at 498, 95 S.Ct. at 2205.
Constitutional limitations on standing "relate to a court's jurisdictional power under Article III, which requires that the plaintiff `show that he has personally suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant' and that the injury `fairly can be traced to the challenged action' and is "likely to be redressed by a favorable decision.'" First Hartford, 194 F.3d at 1290 (citations omitted). By comparison, the second type of limitations on standing — prudential limitations — involve
a court's administrative discretion to hear a case; they are those that the judiciary imposes `to avoid deciding questions of broad social import where no individual rights would be vindicated and to limit access to the federal courts to those litigants best suited to assert a particular claim.'Id. (citation omitted; emphasis supplied). "Prudential standing requires, among other things, that a `plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties.'" Lans v. Digital Equipment Corp., 252 F.3d 1320, 1328 (Fed. Cir. 2001) (citation omitted).
Here, at issue are not Article III's constitutional limitations, but rather prudential limitations, imposed by United States patent laws. The party seeking to invoke the jurisdiction of a federal court must establish the requisite standing to sue before the court can consider the merits of his legal claim. Whitmore v. Arkansas, 495 U.S. 149, 154 (1990); Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1032-33 (Fed. Cir. 1995); see Kokkonen, 511 U.S. at 377 ("It is to be presumed that a cause lies outside [federal court's] limited jurisdiction . . . and the burden of establishing the contrary rests upon the party asserting jurisdiction").
"For purposes of ruling on a motion to dismiss for want of standing, [the court] must accept as true all material allegations of the complaint and must construe the complaint in favor of the complaining party."Warth, 422 U.S. at 501. "At the same time, however, the court may allow or require the plaintiff to supply, by amendment to the complaint or by affidavits, further particularized allegations of fact deemed supportive of plaintiff's standing." Id. "If, after this opportunity, the plaintiff's standing does not adequately appear from all materials of record, the complaint must be dismissed." Id. at 502.
In order for a court to exercise jurisdiction, the plaintiff must have standing to sue on the date it files suit. See Minneapolis St. Louis R.R. Co. v. Peoria Pekin Union Ry. Co., 270 U.S. 580, 586 (1926) ("The jurisdiction of the lower court depends upon the state of things existing at the time the suit was brought"); GAIA Technologies, Inc. v. Reconversion Technologies, Inc., 93 F.3d 774, 780 (Fed. Cir. 1996),mandate withdrawn, amended on reh'g on other grounds, 104 F.3d 1298 (Fed. Cir.), on reh'g, 132 F.3d 52, 1997 WL 748148 (Fed. Cir. 1997). Whether a plaintiff has standing to sue for patent infringement is a legal question. Lans, 252 F.3d at 1328.
Title 35 U.S.C. § 281 provides that "[a] patentee shall have remedy by civil action for infringement of his patent" The word "patentee" as used in the statute "includes not only the patentee to whom the patent was issued but also the successors in title to the patentee." 35 U.S.C. § 100(d). Pursuant to 35 U.S.C. § 261, patents "or any interest therein, shall be assignable in law by an instrument in writing." "The general rule is that one seeking to recover money damages for infringement of a United States patent (an action `at law') must have held the legal title to the patent during the time of the infringement."Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1579 (Fed. Cir. 1991). "The sole exception to the rule that only he who is the owner of the patent at the time of the infringement can sue for damages . . . is when such owner assigns the patent and also the claim for past infringements to the same person." Crown Die Tool C. v. Nye Tool Machine Works, 261 U.S. 24, 43 (1923). Alternatively, the plaintiff must be a licensee who holds "all substantial rights" in the patent. H.R. Technologies, Inc. v. Astechnologies, Inc., 275 F.3d 1378, 1384 (Fed. Cir. 2002).
Fabpro does not dispute the basic law addressing who may sue for infringement. Instead, Fabpro argues that it is now the lawful owner of the `439 patent. In its Motion for Leave to File Its Second Amended Complaint, Fabpro indeed alleges that it is "the owner of all right, title, and interest" to the `439 patent. Id.¶ 5. However, Fabpro also specifically alleges that it acquired its rights via an assignment "effective nunc pro tunc." Id. What does this mean? Fabpro elaborates by explaining that on August 27, 2001, Claas KgaA, another German corporation and successor in interest to Claas OHG, assigned its full right, title, and interest to the `439 patent to Fabro, effective retroactively to July 5, 1989, the date when Exxon obtained its exclusive license. Id.¶s 16, 19.
Although Fabpro's Motion for Leave to File Its Second Amended Complaint (docket no. 45) included the proposed newly amended pleading, Fabpro subsequently filed a "Request for Substitution of Plaintiff's Proposed Second Amended Complaint" (docket no. 47) in which it has sought permission to substitute an even more recently revised version of its pleading, including further allegations regarding another proposed defendant, Stefanos Stamos. Any references to the proposed Second Amended Complaint herein apply to this latest revision, included within docket no. 47.
For sake of simplicity, the court will hereinafter refer to Claas OHG and Claas KgaA collectively as "Claas."
However, before addressing Fabpro's motion for leave to amend, the court must first determine whether Fabpro held "all substantial rights" in the patent at the time it filed this action. With its motion to dismiss, McCormick has submitted evidence indicating that as of January, 2000, just over one year before this action was filed, Polymer Group, Inc., Fabpro's parent company, indicated that Fabpro was the exclusive licensee of claims 1 and 2 of the `439 patent. The patent itself, however, refers to five claims. Fabpro has submitted as evidence a redacted copy of the license obtained by Exxon from Claas. It is noted that at least three entire articles of the license have been omitted from Fabpro's submission. The portions which Fabpro has provided do, however, appear to confirm McCormick's contention that Fabpro's license, acquired through Exxon's, is not in fact exclusive at all. For instance, the preamble of the agreement indicates that Exxon wished "to acquire an exclusive license for certain rights under the claims of the patent" as set forth in the license. In addition, while the license gave Exxon the right to initiate patent litigation, Claas retained the right to sue for infringement if Exxon declined to do so.
"A patent is `a bundle of rights which may be divided and assigned, or retained in whole or in part.'" Intellectual Property Development, Inc. v. TCI Cablevision of California, Inc., 248 F.3d 1333, 1342 (Fed. Cir.) (citation omitted), cert. denied, 122 S.Ct. 216 (2001). "To determine whether a patent transfer agreement conveys all substantial rights under a patent to a transferee of fewer than all of those rights, . . . it is helpful to consider rights retained by the grantor in addition to rights transferred to the grantee." While use of the term "license" rather than the term "assignment" in an agreement to transfer is not controlling, what is relevant is whether the transferee receives all of the substantial patent rights. Id. at 1344-45. Here, the parties' submissions do not show that Claas' license to Exxon granted "all substantial rights" of the patent. What the evidence submitted shows is merely that Exxon, and ultimately Fabpro through Exxon and Polymer Group, Inc., obtained an exclusive license relating only to two claims of the patent Thus, the court concludes that because Fabpro has a license which covers only some, but not all of the five claims of the patent, it does not hold the interest in all substantial rights of the patent.
What is not reflected by the redacted copy of the license provided to the court is whether Claas retained any other rights under `439 patent apart from those mentioned herein. Fabpro contends that it has provided a full copy of the license to McCormick, and has offered to produce a full copy to the court "under seal" should the court so desire. However, the court has no necessity to accept Fabpro's offer, for the materials already submitted reflect the retention of some rights by Claas: namely, rights to three of the five claims under the patent.
Moreover, even where a licensee has what is termed an "exclusive" license, the Federal Circuit "adheres to the principle that the patent owner should be joined, either voluntarily or involuntarily, in any patent infringement suit by an exclusive licensee having fewer than all substantial patent rights." Id. at 1347. "This principle holds true except in extraordinary circumstances, such as where the infringer is the patentee and cannot sue itself." Id. at 1348.
It is noted that Fabpro has not sought to join Claas; indeed, to the contrary. Fabpro characterizes the joinder of Claas as Fabpro's "right," not a jurisdictional requirement. Plaintiff's Memorandum of Law in Opposition to the McCormick Defendants' Motion to Dismiss Under Fed.R.Civ.P. 12(b), at 8 ("Fabpro had the right to file this case, and join Claas as co-plaintiff. . . However, rather than join Claas as co-plaintiff, Fabpro has now acquired full ownership"). This is an interesting assertion, for the case which Fabpro cites in support of this position, Independent Wireless Telegraph Co. v. Radio Corp. of America, 269 U.S. 459 (1926), has instead been interpreted as requiring that the patent owner be joined, either voluntarily or involuntarily, in an infringement action brought by an exclusive licensee who holds less than all substantial rights in the patent Prima Tek II, L.L.C. v. A-Roo Co., 222 F.3d 1372, 1377 (Fed. Cir. 2000).
Again, Fabpro has not asked the court to join Claas in this action. It is not known whether Fabpro has ever asked Claas to join voluntarily as a plaintiff. While Fabpro emphasizes that the exclusive license gives Fabpro the right to sue for infringement, it matters not what the contractual arrangement is or was between Fabpro and Claas, or between Claas and Exxon, regarding who may sue; a contract may not change the statutory requirement that the suit be brought by the patent owner. Id. at 1381.
As the court will discuss below, Fabpro's position is that getting Claas to execute a nunc pro tunc assignment is an adequate alternative to joinder. Because of this assignment, presumably, Claas would no longer have any interest in participating in this action as a plaintiff even though it retained rights in the patent at the time Fabpro filed this action.
This brings the court to Fabpro's motion for leave to file a second amended complaint to allege Class' nunc pro tunc assignment of full rights in the patent to Fabpro. Fabpro argues that the assignment, made well after it filed this action but given an effective date well before Fabpro filed the action, renders the defendants' standing arguments "moot" because Fabpro undisputedly now owns the `439 patent. Although Fabpro refuses to concede that standing has ever been lacking, Fabpro argues that the defendants' assertion of the standing issue renders the amendment of the pleadings "just" for purposes of Fed.R.Civ.P. 15. Fabpro further argues that because prejudice does not arise from the amendment the amendment should "relate back" to the date of the original complaint pursuant to Rule 15(c). Relation back would apparently, in Fabpro's view, resolve any problems posed by that long-standing, inconvenient rule requiring a plaintiff to have standing on the date it files suit. See Minneapolis St. Louis R.R., 270 U.S. at 586.
The difficulty with adopting Fabpro's position is that it treads on well-Worn Federal Circuit territory holding that " nunc pro tunc assignments are not sufficient to confer retroactive standing[.]" Enzo APA Son, Inc. v. Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998);GAIA, 93 F.3d at 779-780; see Arachnid, 939 F.2d at 1579 (1987 court order decreeing plaintiff "to have been owner" of invention was ineffective to bestow standing on plaintiff to retroactively seek patent infringement damages for prior period); but see Mas-Hamilton Group v. LaGard, Inc., 156 F.3d 1206, 1211 (Fed. Cir. 1998) (original assignment after appeal filed, of "entire right, title and interest" in patent supplemented by nunc pro tunc assignment of right to sue for past infringement and by merger of companies, was sufficient to withstand motion to dismiss appeal for lack of standing). Under this applicable authority, standing to sue for infringement exists in the case of a retroactive assignment only if a party comes "forward with evidence necessary to establish that [the] assignment, in writing, of the Intellectual Property took place before the lawsuit was filed." GAIA, 93 F.3d at 780.
Fabpro's attempts to distinguish this authority are weak and unpersuasive. Fabpro is simply wrong in assessing that an amendment which relates back to the original date of filing cures any standing problems. It does not If "[t]he charming utility of the nunc pro tunc device cannot obscure its outright fiction[,]" Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 840 (1989) (Kennedy, J., dissenting), then an amendment of the pleadings cannot rewrite history and cure a standing defect. Amendment would be futile.
Fabpro argues that the Federal Circuit has recognized that "even appellate-level amendments to correct jurisdictional defects may be appropriate to allow an exclusive licensee to join the patent owner."Intellectual Property, 248 F.3d at 1348-49 n. 15. However, while this recognized principle has been applied in cases involving defects based on misjoinder or nonjoinder of a party, it is not applied where a party simply wishes to alter the relevant facts. See Newman-Green, 490 U.S. at 832-38 (holding that 28 U.S.C. § 1653 "allows appellate courts to remedy inadequate jurisdictional allegations, but not defective jurisdictional facts"; however, courts of appeals have authority by virtue of Fed.R.Civ.P. 21 to dismiss a dispensable party whose presence destroys diversity jurisdiction); Mullaney v. Anderson, 342 U.S. 415, 417 (1952) (granting Rule 21 motion for joinder as parties two union members, where plaintiff for first time at Supreme Court level questioned standing of union to maintain suit; although Rule 21 "will rarely come into play" at advanced stage of litigation, "special circumstances" warranted granting the motion); Intellectual Property, 248 F.3d at 1348 (patent owner may be joined by exclusive licensee); Mentor H/S, Inc. v. Medical Device Alliance, Inc., 240 F.3d 1016, 1019 (Fed. Cir. 2001) (inviting plaintiff to file Rule 21 motion to join apparent legal owner of patent).
Even Haddad Bros., Inc. v. Little Things Mean A Lot, Inc., an unpublished district court decision on which Fabpro heavily relies, involved joinder of the party who owned the patents at the time the action was filed. 00 Civ 0578, 2000 U.S. Dist. LEXIS 11035, *26, *34-35 (S.D.N.Y. Aug. 4, 2000). Another case on which Fabpro relies, Procter Gamble Co. v. Paragon Trade Brands, Inc., 917 F. Supp. 305 (D. Del. 1995), indicates that at least one district has expressed that it might be inclined to permit an amendment to a counterclaim which would assert a post-filing assignment to "cure" a defect in standing. Id., at 311. However, the defendant in that case had not yet moved to amend its pleading, and, more importantly, the case does not appear to have ever been followed by the Federal Circuit. This court believes that the Federal Circuit would apply its own precedent to determine whether an amendment of the pleadings should be permitted under circumstances such as those presented here. See Advanced Cardiovascular Sys., Inc. v. Medtronic, Inc., 265 F.3d 1294, 1303 (Fed. Cir. 2001) (reviewing district court refusal to permit amendment of the pleadings to assert defenses under patent statutes).
The court has considered whether Fabpro's motion for leave to file a second amended pleading should instead be treated as a motion for leave to file a supplemental pleading under Fed.R.Civ.P. 15(d). Such a pleading "recites facts occurring after the complaint was filed." Black v. Secretary of Health and Human Servs., 93 F.3d 781, 789 (Fed. Cir. 1996). If a supplemental pleading is permitted, "the new allegations can be relied upon to cure what would have been a defect in the plaintiff's case." Id. However, while supplemental pleadings can be allowed to address waivable preconditions to suit Mathews v. Diaz, 426 U.S. 67, 75 (1976), they cannot be used in a manner which contradicts Congressional intent. Black, 93 F.3d at 790-91. In addition, "[n]o amendment or supplement to a pleading can change a historical fact[.]" Harris v. Gamer, 216 F.3d 970, 981 (11th Cir. 2000), cert. denied, 532 U.S. 1065 (2001). Because allowing Fabpro's proposed Second Amended Complaint as a supplemental pleading would change a historical fact — ownership of the patent — and would in effect contradict the statutory provision granting the right of suit to a "patentee" or legitimate "successor in title" by permitting a mere licensee with limited rights in the patent to file a valid action, the court declines to allow Fabpro's proposed second amended pleading as a supplement to its amended complaint.
Although the defendants have suggested that any dismissal should be with prejudice, Fabpro is correct that a dismissal for lack of standing would have to be without prejudice. See H.R. Technologies, 275 F.3d at 1385 (applying the law of the "pertinent legal circuit" — Sixth Circuit — to determine that district court did not abuse it discretion in dismissing patent infringement action without prejudice based on lack of standing; "[b]ecause lack of standing is not an issue that goes to the merits of the underlying patent issues, a dismissal of a complaint for lack of standing would not normally be expected to be made with prejudice"); see also Textile Productions, Inc. v. Mead Corp., 134 F.3d 1481, 1486 (Fed. Cir.), cert. denied, 525 U.S. 826 (1998). Such a dismissal would, of course, leave Fabpro free to file another action against the defendants. But that Fabpro might simply re-file does not cause the court hesitation in doing what it must Cf. Mullaney, 342 U.S. at 417 (where plaintiff did not raise standing issue until case advanced to Supreme Court dismissal of petition for certiorari which would "require the new plaintiffs to start over in the District Court would entail needless waste and runs counter to effective judicial administration — the more so since, with the silent concurrence of the defendant, the original plaintiffs were deemed proper parties below"). The defendants have raised the issue of standing early in the litigation. Fabpro could have forestalled any dismissal by seeking joinder of Claas, but Fabpro has not sought such a joinder, either voluntary or involuntary. Instead, for its own reasons, Fabpro has procured from Class an assignment that, for purposes of the already pending lawsuit is useless. As in Lans, Fabpro's "personal choices" have occasioned its standing problems. 252 F.3d at 1328.
"[T]he requirement that a licensee sue in the name of the patentee is not merely a formality." Ortho Pharmaceutical, 52 F.3d at 1034. "The patentee is brought into the suit for substantive reasons, namely, to protect its own interests in connection with the charged acts of infringement and `to enable the alleged infringer to respond in one action to all claims of infringement for his act.'" Id. (quotingIndependent Wireless, 269 U.S. at 468). The standing requirement, not being a mere formality, cannot be overcome through the convenient fiction of a nunc pro tunc assignment. Such an act might impact on the licensee's relationship with the patentee, but it cannot overcome limitations on this court's authority.
Conclusion
At the time Fabpro filed this action, it lacked standing to pursue statutory claims for infringement of the `439 patent. Therefore, the court grants the defendants' motions for dismissal for lack of standing. In view of the court's conclusion that Fabpro lacked standing to file this action, the court has no authority to address the remaining issues raised by the defendants' motions.
This action is dismissed without prejudice.