Opinion
No. C 03-4739 CW.
August 10, 2004
ORDER DENYING MICROSOFT'S MOTION FOR SUMMARY ADJUDICATION AND GRANTING MORROW'S CROSS-MOTION FOR SUMMARY ADJUDICATION
Defendant Microsoft Corporation (Microsoft) has filed a motion for summary adjudication, pursuant to Federal Rule of Civil Procedure 56. Plaintiff Frank Morrow has filed a crossmotion for summary adjudication. The matter was heard on May 21, 2004. Having considered all of the papers filed by the parties and oral argument on the motion, the Court DENIES Microsoft's motion and GRANTS Morrow's cross-motion.
While the parties labeled these as cross-motions for summary judgment, they do not seek complete disposition of the case and are more accurately labeled as cross-motions for summary adjudication of the limited issue of standing.
BACKGROUND
The essential facts are undisputed. At Home Corporation (At Home) was an internet service provider. It provided high-speed internet connections through cable infrastructure. It owned U.S. Patent No. 6,122,647 on software technology (the '647 patent).
In September, 2001, At Home filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Two committees of unsecured creditors were appointed: the Committee of Bondholders and the General Unsecured Creditors Committee. On April 19, 2002, At Home entered into a settlement agreement with the two committees. Ticak Dec. Ex. F. The settlement agreement became incorporated into a Joint Plan of Liquidation (Plan). After confirmation by the Bankruptcy Court, the Plan became effective on September 30, 2002.
The Plan created three trusts that are relevant to this action: the Bondholders' Liquidating Trust (B), the General Unsecured Creditors' Liquidating Trust (G), and the At Home Liquidating Trust (A). Ticak Dec. Ex. A. The Plan distributed certain asserts and rights to each trust.
B received a portion of the available cash and the rights to "Controlling Shareholders' Related Litigation," id. at 16, defined as all of At Home's rights of action against its controlling shareholders ATT Corporation, Comcast Corporation and Cox Communications, Inc. Id. Ex. F. at 11.
G received a portion of the available cash and the rights to "Estate Litigation," id. Ex. A at 16, defined as all of At Home's rights of action other than the Controlling Shareholders Related Litigation, including "claims for infringement or misappropriation of intellectual property rights." Id. Ex. F. at 13. The Bankruptcy Judge's Order approving the Plan deemed G At Home's "successor for all purposes relating to the prosecution or settlement of the Estate Litigation" and held that G may "sue in the name of and on behalf of the Debtors and the Estates the same as if the Estate Litigation had never been transferred and assigned by the Debtors and the Estates." Ticak Ex. A ¶ 10. The Plan required B and G to "cooperate with each other in all reasonable respects in their respective pursuit of the Controlling Shareholders Related Litigation and the Estate Litigation." Id. Ex. A at 18.
A received all assets not distributed to B or G. Ticak Dec. Ex. C at 16-17, including legal title to the '647 patent as an assignee of At Home. Id. at 25. A was created to wrap up At Home's remaining affairs such as paying taxes, satisfying administrative and tax claims and completing any sales of assets not completed as of the Plan's effective date. Id. Then, it was to distribute any remaining funds to B and G as beneficiaries. Ticak Ex. C at 21.
As indicated by the names of each of these liquidation trusts, their purpose is to liquidate trust assets, either through the sale of assets or the prosecution or settlement of rights of action. Ticak Ex. C at 22. A must obtain written consent of B and G before selling, transferring, or disposing of any intellectual property. Ticak Dec. Ex. E. at 8.
On September 30, 2002, Microsoft brought a copyright and patent infringement action against A. The parties settled pursuant to the terms of a "Settlement Agreement and Mutual Release" (Release), which states, "[A] and its affiliates, agents, attorneys, employees, successors and assigns hereby release, discharge and acquit [Microsoft] . . . from all debts, claims, liabilities, demands, damages, actions and causes of action of any kind and all kinds whatsoever, whether known, unknown, or unforseen, that . . . [A] has, may have or could have had against [Microsoft] as of the effective date hereof . . ." Ticak Dec. Ex. H at ¶ 4. The Release also included a "carve out" provision excepting G's claims against Microsoft and Microsoft's claims against G from the release between A and Microsoft. Id. ¶ 6.
On October 22, 2003, Morrow filed this action against Microsoft alleging infringement of the '647 patent. Morrow seeks both money damages and injunctive relief. Morrow asserts his claim for damages in two capacities: (1) on behalf of and as trustee for G; and (2) on behalf of and in the name of A. Morrow asserts his claim for injunctive relief on behalf of G as equitable title holder of the '647 patent. Microsoft moves for summary adjudication that Morrow lacks standing. Morrow cross-moves for summary adjudication that he does have standing.
LEGAL STANDARD
Summary judgment is properly granted when no genuine and disputed issues of material fact remain, and when, viewing the evidence most favorably to the non-moving party, the movant is clearly entitled to prevail as a matter of law. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir. 1987).
The moving party bears the burden of showing that there is no material factual dispute. Therefore, the court must regard as true the opposing party's evidence, if supported by affidavits or other evidentiary material. Celotex, 477 U.S. at 324;Eisenberg, 815 F.2d at 1289. The court must draw all reasonable inferences in favor of the party against whom summary judgment is sought. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Intel Corp. v. Hartford Accident Indem. Co., 952 F.2d 1551, 1558 (9th Cir. 1991).
Material facts which would preclude entry of summary judgment are those which, under applicable substantive law, may affect the outcome of the case. The substantive law will identify which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Where the moving party does not bear the burden of proof on an issue at trial, the moving party may discharge its burden of showing that no genuine issue of material fact remains by demonstrating that "there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325. The moving party is not required to produce evidence showing the absence of a material fact on such issues, nor must the moving party support its motion with evidence negating the non-moving party's claim. Id.; see also Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 885 (1990); Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991), cert. denied, 502 U.S. 994 (1991). If the moving party shows an absence of evidence to support the non-moving party's case, the burden then shifts to the opposing party to produce "specific evidence, through affidavits or admissible discovery material, to show that the dispute exists."Bhan, 929 F.2d at 1409. A complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial. Celotex, 477 U.S. at 323.
Where the moving party bears the burden of proof on an issue at trial, it must, in order to discharge its burden of showing that no genuine issue of material fact remains, make a prima facie showing in support of its position on that issue. See UA Local 343 v. Nor-Cal Plumbing, Inc., 48 F.3d 1465, 1471 (9th Cir. 1994). That is, the moving party must present evidence that, if uncontroverted at trial, would entitle it to prevail on that issue. See id.; see also Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264-65 (5th Cir. 1991). Once it has done so, the non-moving party must set forth specific facts controverting the moving party's prima facie case. See UA Local 343, 48 F.3d at 1471. The non-moving party's "burden of contradicting [the moving party's] evidence is not negligible." Id. This standard does not change merely because resolution of the relevant issue is "highly fact specific." See id.
DISCUSSION
The Court must decide a single issue: does Morrow have standing to sue for infringement of the '647 patent? "The question of standing to sue is a jurisdictional one." Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1551 (Fed. Cir. 1995). The right to sue for patent infringement is created by statute. Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1578 (Fed. Cir. 1991). The Patent Act provides that only "[a] patentee shall have remedy by civil action for infringement of his patent." 35 U.S.C. § 281. Title 35 U.S.C. § 100(d) provides, "The word `patentee' includes not only the patentee to whom the patent was issued but also the successors in title to the patentee."A patent is a bundle of rights, conferring a monopoly on the patentee to make, vend and use the invention. Crown Die Tool Co. v. Nye Tool Machine Works, 261 U.S. 24, 37 (1923). In the traditional patent law context, issues of standing arise after a patentee divides the bundle of rights among multiple parties. A patentee may assign to a successor the entire monopoly throughout the United States, an individual share of the monopoly, or the entire monopoly in a specified geographic region of the United States. Any of these transfers is an assignment, or a formal transfer of rights. Waterman v. Mackenzie, 138 U.S. 252, 255 (1891). After assignment, the successor holds sufficient sticks in the bundle to constitute legal title to the patent, granting the successor standing to sue infringers.
Even if the patentee's transfer of rights does not vest legal title in the successor, it may constitute a transfer of equitable title. Equitable title is "the beneficial interest of one person whom equity regards as the real owner, although the legal title is vested in another." Arachnid, 939 F.2d at 1578 n. 3. "Where a plaintiff has been adjudged the equitable title holder of a patent, a federal district court has jurisdiction to consider claims for equitable relief stemming from the alleged infringement." Id. at 1580.
Any other type of transfer is a license. A licensee has no legal title in the patent and no standing to sue for infringement. Id. The policy rationale driving this principle is that a licensee who does not have an exclusive right to make, vend or use the invention suffers no legal injury from the making, vending or use of another. Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1031 (Fed. Cir. 1995). This rule protects an accused infringer against duplicative lawsuits initiated by both a patentee and licensee. "By restricting the availability of a remedy for infringement to the de facto owner of the patent, the standing doctrine serves `to enable the alleged infringer to respond in one action to all claims of infringement for his act, and thus either to defeat all claims in one action, or by satisfying one adverse decree to bar all subsequent actions.'" Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000), citing Indep. Wireless Tel. Co. v. Radio Corp. of Am., 269 U.S. 459, 468 (1926).
I. Morrow's Standing to Sue on Behalf of G
Morrow brings this action as, inter alia, Trustee of G. The Court must determine whether G has standing to sue Microsoft for patent infringement. The Plan gave G the right to pursue Estate Litigation, which includes intellectual property litigation. The grant to a licensee of a right to sue for patent infringement is generally insufficient to confer standing to bring such a suit. The Federal Circuit discussed this issue in Ortho Pharmaceutical Corp., 52 F.3d at 1026, where a patentee granted the plaintiff a nonexclusive license. The license also purportedly included a right to sue third parties for patent infringement. Id. at 1034. The court concluded that standing to sue for patent infringement may not be conferred by a naked contractual right to sue. The plaintiff had no standing because "[a] patentee may not give a right to sue to a party who has no proprietary interest in the patent." Id. Microsoft argues that G has no standing because, like a licensee, it does not have the exclusive right to make, sell, distribute, license, or use the invention disclosed in the '647 patent. Microsoft contends that, although the Plan purportedly gives G the right to sue for patent infringement, G has no standing to do so because A owns the patent.
Ortho is distinguishable. G is not a licensee. G's rights arise out of bankruptcy law and trust relationships, rather than a traditional patent licensing relationship. Unlike a licensee, G has a proprietary interest in the patent. G is At Home's successor for all purposes relating to Estate Litigation and may pursue Estate Litigation in At Home's name as if it had never gone bankrupt. Bankruptcy Confirmation Order at ¶ 10.
G also has a proprietary interest in the patent as a trust beneficiary. Unlike the patent holder in Ortho, A holds the '647 patent in trust for G and B. Thus, for the purposes of patent infringement litigation against any party other than At Home's controlling shareholders, G is the beneficial owner of the '647 patent. G holds equitable title to the patent. Thus, Morrow has standing to bring this action on G's behalf.
Relying on Crown Die Tool, Microsoft argues that even if G holds equitable title in the '647 patent, it has no standing to seek equitable relief from infringement unless it joins A, the holder of legal title. Microsoft argues that, pursuant to the Release, G cannot join A, because A waived its right to sue Microsoft. Crown Die arose in the context of a patent assignment. It holds, "In equity both [the] assignor and the assignee who is the real party in interest must join as plaintiffs." Crown Die, 261 U.S. at 44. Crown Die does not apply here, where there is no assignor-assignee relationship. Because bankruptcy and trust law define the relationship between A and G, the principles of traditional patent licensing agreements do not apply. As discussed above, G holds beneficial interest in the '647 patent and has standing to sue for both damages and injunctive relief.
This Order need not, and does not, discuss the effect of the Release on A's standing to join this lawsuit.
Microsoft argues that this conclusion undermines the rationale underlying the standing rule in patent law. This argument fails. A may not sue anyone for patent infringement. The Plan distributes the right to sue to G and B. B may not sue Microsoft for patent infringement because the Plan empowers B to sue only At Home's controlling shareholders, a group to which Microsoft does not belong. Thus, the conclusion that G has standing to sue Microsoft does not subject Microsoft to the risk of duplicative patent infringement lawsuits.
II. Morrow's Standing to Sue on Behalf of A
Alternatively, Morrow contends that he has standing to bring this action on A's behalf. Because the Court finds that Morrow has standing as trustee of G, it need not address the merits of this argument.
CONCLUSION
The Court DENIES Microsoft's motion for summary adjudication (Docket no. 38) and GRANTS Morrow's cross-motion (Docket no. 45), adjudicating that he has standing to sue, as set forth above.
IT IS SO ORDERED.