Opinion
No. SA-03-CA-0087-RF
July 23, 2003
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS CLAIMS OF PLAINTIFF HARK C. CHAN
Before the Court is Defendants' Motion to Dismiss the Claims of Plaintiff Hark C. Chan ("Motion to Dismiss"), filed on April 10, 2003. After due consideration, the Court is of the opinion that Defendants' Motion to Dismiss should be GRANTED.
FACTUAL AND PROCEDURAL BACKGROUND
The present suit arises out of a patent infringement claim involving the distribution of digital information. For purposes of this Motion, however, the relevant facts are more limited and undisputed. Plaintiff Hark C. Chan is the "named inventor" of the patents at issue in this case. On December 24, 2001, Plaintiff Chan entered into an agreement (hereinafter "Agreement") with Plaintiff Data Innovation, under which Chan transferred certain rights under the patents. The Agreement provides that Chan, as "Assignor":
Pls.' Compl. At 1 ¶ 1 (Feb. 4, 2003).
See Pls.' Mem. in Opp'n to Defs.' Mot. to Dismiss, Ex. 1, 2 (Apr. 24, 2003). Although the Agreements themselves name TechSearch, L.L.C. as the "Assignee," Plaintiffs stipulate, and Defendants do not contest, that Plaintiff Data Innovation has acquired all the rights assigned to TechSearch through the Agreements.
shall assign, convey, transfer and sell to Assignee [Data Innovation] the entire right, title and interest in and to the Patents, including without limitation, all rights of Assignor to sue for past, present and future infringement of the Patents, including the right to collect and receive any damages, royalties, or settlements for such infringements and any and all causes of action relating to any of the inventions or discoveries described in the Patents. Assignor shall execute and deliver to Assignee a separate Assignment and such other documents as Assignee shall reasonably require to effectuate the transactions contemplated by this Agreement.
Id., Ex. lat 1 ¶ 1.
The Agreement also provides that Assignee will pursue licensing and enforcement of the patents at its expense and will, when necessary and appropriate, institute enforcement actions against potential infringers. It provides that, if Assignor were named as a party or otherwise included in any enforcement action brought by Assignee with respect to the patents, Assignee's attorneys will represent Assignor, although Assignor reserves the option of retaining his own counsel. It also states that, "[i]n the event Assignor joins as a plaintiff at the request of Assignee, Assignee shall indemnify Assignor against any judgment for costs or award of sanctions that may be made or entered against Assignor. . . ."
Id., Ex. 1 at 1 ¶ 2.
Id., Ex. 1 at 1-2 ¶ 2(b).
Id., Ex. 1 at ¶ 2(b).
In consideration of the rights granted to Assignee, Assignor is to receive a share of the "Net Patent Revenues," including "all license fees, damages, awards, settlements or other amounts paid to Assignee under or in respect of the Patents. . . ." The Agreement contains an additional provision stating that the right to such payment "shall not be deemed to create any other or additional rights of Assignor with respect to the exploitation of the rights granted to Assignee." It further provides that "Assignor shall have no rights (and its consent or approval shall not be required) with respect to any future licensing, enforcement or other action or failure to act of or by Assignee with respect to the Patents."
Id., Ex. 1 at 2 ¶ 3.
Id., Ex. 1at 3 ¶ 4(d).
Id., Ex. 1 at 3 ¶ 4(d).
Assignor does, however, retain a reversionary interest in the patents. The Agreement provides that Assignee's ownership interest shall revert to Assignor upon the occurrence of any of a number of events, including: (a) dissolution or bankruptcy of Assignee; (b) Assignee's failure to comply with the terms of the Agreement; (c) Assignee's grant of a license in a manner that avoids the purpose of the sharing arrangement; (d) Assignee's failure to negotiate commercially reasonable licenses or pursue infringement actions after eighteen months; or (e) upon reversion of another patent for similar reasons.
Id., Ex. 1 at 4-5 ¶ 9.
On December 29, 2001, Plaintiff executed the separate assignment (hereinafter "Assignment") required to "effectuate the transactions contemplated by [the] Agreement." The Assignment provides that Assignor
ld., Ex. 1 at 1 ¶ 1; see also Defs.' Mot. to Dismiss, Ex. A (Apr. 10, 2003).
does hereby sell, transfer, assign, convey and deliver to [Assignee] . . . the full and exclusive right, title and interest, for, to and in the United States . . ., in and to United States Patent Numbers 6,188,869 Bl; . . . and Application Numbers 09/440,502; . . . 09/686,276; . . . together with any and all corresponding patent applications . . . and any and all claims for damages or equitable relief by reason of past, present or future infringement or other unauthorized use of any of the foregoing, with the exclusive right to sue for and collect the same.
Defs.' Mot. to Dismsis, Ex. A.
Plaintiff filed a copy of the Assignment with the United States Patent and Trademark Office ("PTO").
Id. at 2-3; Pls.' Mem. in Opp'n to Defs.' Mot. to Dismiss at 3.
At the core of the present Motion is the standing of Plaintiff Hark C. Chan to join as a Plaintiff in the instant litigation. Defendants filed their Motion to Dismiss against Plaintiff Chan on April 10, 2003 for lack of standing to invoke subject matter jurisdiction. Defendants challenge Plaintiff Chan's standing on the basis of the language in the Assignment, which Defendants claim divests Plaintiff of his right to bring suit. Plaintiff Chan asserts that standing is proper under the terms of the Agreement. Plaintiff Data Innovation does not object to Chan's participation in the case.
A hearing was held on this matter on July 16, 2003, at which time the Court heard thoughtful, professional, and spirited arguments from counsel on both sides of this issue. Having considered the arguments of the parties, as presented both in their pleadings and at the hearing, the Court now discusses its decision on the Motion to Dismiss.
STANDARD OF REVIEW
The present Motion involves a challenge to Plaintiff Chan's standing to bring suit in the present action under Rule 12(b)(1) of the Federal Rules of Civil Procedure. Because at issue in such a motion "is the trial court's jurisdiction-its very power to hear the case-there is substantial authority that the trial court is free to weigh the evidence to satisfy itself as to the existence of its power to hear the case." The Court "has the power to dismiss for lack of subject matter jurisdiction on any one of three separate grounds: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts."
Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981) (citing FED. R. CIV. P. 12(b)(1)).
Id.
The first two grounds involve merely applications of law, while the third ground also requires findings of fact. Noting that the parties agree as to the existence of the Agreement and Assignment in this case, but merely disagree as to the legal effect of these two documents, the Court reviews the Rule 12(b)(1) Motion to Dismiss on the second ground-the complaint supplemented by undisputed facts evidenced in the record.
Id.
On a challenge to a party's standing to sue, as presented here, "the party invoking federal jurisdiction bears the burden" of establishing the existence of the required elements: (1) injury in fact; (2) causation; and (3) redressability. Thus, the Court reviews the complaint and undisputed record in this case to determine whether Plaintiff Chan has established standing to sue in a patent infringement action.
See Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 103-104, 118 S.Ct. 1003, 1016-17 (1998),
DISCUSSION
Pursuant to 35 U.S.C. § 281, a "patentee" has standing to bring a civil action for patent infringement. "The term patentee includes `not only the patentee to whom the patent was issued but also the successors in title to the patentee.'" Thus, where the original patentee "makes an assignment of all significant rights under the patent, such assignee may be deemed the effective `patentee' under the statute" and has standing to bring a suit for infringement.
Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1030 (Fed. Cir. 1995) (quoting 35 U.S.C. § 100(d)).
Id.
In the event of such an assignment, "only the assignee or the assignee's exclusive licensee has standing to claim protection rights under the patent." The assignor "divest[s] himself of ownership of the patent" and "no longer has a proprietary right in the patent" unless he is an exclusive licensee. Thus, Plaintiff Chan's standing to bring suit in this case turns on the status of the parties with respect to ownership of the patent. This status is defined by the Agreement and Assignment in effect in this case.
Gilson v. Republic of Ireland, 606 F. Supp. 38, 41 (D.D.C. 1984) (citing Waterman v. MacKenzie, 138 U.S. 252, 256, 11 S.Ct. 334, 335 (1891)) (emphasis added).
Id. at 41-42 (citing Crown Die Tool Co. v. Nye Tool Machine Works, 261 U.S. 24, 37, 43 S.Ct. 254, 257 (1923)).
"To determine whether a provision in an agreement constitutes an assignment or a license, [the Court] must ascertain the intention of the parties and examine the substance of what was granted." It should be noted that the title "Assignment," used by the parties "is not determinative of the nature of the rights transferred under the agreement; actual consideration of the rights transferred is the linchpin of such a determination." A transfer will be considered an assignment "if it appears from the agreement and surrounding circumstances that the parties intended that the patentee surrender all his substantial rights to the invention."
Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 874 (Fed. Cir. 1991).
Intellectual Prop. Dev., Inc. v. TCI Cablevision of California, Inc., 248 F.3d 1333, 1344 (Fed. Cir. 2001) (citing Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1250 (Fed. Cir. 2000)).
Vaupel, 944 F.2d at 874.
It should be noted at the outset that the Court is not faced with a situation in which Plaintiff Chan seeks to bring the action alone. In addition, the Court is not called upon to
withheld." With regard to litigation, the Agreement only provides for Chan's participation in an "enforcement action brought by Assignee," discussing Data Innovation's obligation "[i]n the event Assignor joins as a plaintiff at the request of Assignee. . . ." The Agreement also incorporates a compensation scheme for Chan's benefit. While it provides a reversionary interest for Chan, it is clear from the conditions surrounding the reversion that this provision is essentially an insurance policy for the revenue stream inuring to Chan under the assignment. The reversion becomes operative only in circumstances under which Assignee (Data Innovation) takes or fails to take some action which undermines the financial benefit to Chan contemplated by the Agreement.
Id., Ex. 1 at ¶ 2.
Id., Ex. 1 at 2 ¶ 2(b).
Id., Ex. 1 at 2 ¶ 3.
Id., Ex. 1 at 4-5 ¶ 9.
The Court also notes the language of the Assignment itself, which provides that Chan conveys "the full and exclusive right, title and interest" in the patents, including "any and all claims for damages or equitable relief by reason of past, present or future infringement or other unauthorized use of any of the foregoing, with the exclusive right to sue for and collect the same." Reading the two documents together, the Court concludes that Plaintiff Chan intended to execute an assignment of his proprietary rights in the patent to Data Innovation. Data Innovation reserves primary authority to "exclude others from making, using or selling the invention . . .," Thus, the assignment makes Data Innovation the "effective patentee" of the relevant patents in this case.
Defs.' Mot. to Dismsis, Ex. A. Although the Assignment does not contain the extensive qualifying language of the Agreement, the near-contemporaneous execution of the two documents, as well as the specific reference to a "separate Assignment" in the Agreement, confirms that the documents were meant to operate in conjunction.
Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1031-32 (Fed. Cir. 1995).
Id. at 1030.
Nevertheless, Chan still reserves some rights under the assignment. The issue is whether these rights constitute a sufficient share of the "proprietary sticks from the bundle of patent rights" to warrant co-plaintiff standing. As mentioned above, Plaintiff Chan reserves a right to revenues under the assignment, as well as a reversionary interest. Plaintiff Chan also reserves a license, which is "(i) personal, non-exclusive . . . and (ii) for use only to make, use and sell Assignor's or his Affiliates' own products and services derived from the Patents "
Pls.' Mem. in Opp'n to Defs.' Mot. to Dismiss, Ex. 1 at 4 ¶ 8.
The language of the license, as well as its operative effect, make clear that the license is "non-exclusive," which therefore does not confer a proprietary interest in the patent to Chan. Since a non-exclusive licensee "has no legally recognized interest that entitles it to bring or join an infringement action," this license does not suffice to confer standing upon Plaintiff Chan in the present suit.
See Gilson v. Republic of Ireland, 606 F. Supp. 38, 41-42 (D.D.C. 1984).
Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 2001 U.S. Dist. LEXIS 5032 *8 (S.D. Ind. 2001) (citing Ortho, 52 F.3d at 1031-34).
The right to revenues under the Agreement similarly fails to confer standing upon Plaintiff Chan. The right to receive revenues for licenses, royalties, and damages in this case is "merely a means of compensation under the agreement; this [is] not inconsistent with an assignment" of Chan's interests in the patents to Data Innovation. Indeed, the compensation provision expressly states that it should "not be deemed to create any other or additional rights of Assignor with respect to the exploitation of the rights granted to Assignee."
Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 875 (Fed. Cir. 1991) (citing Rude v. Westcott, 130 U.S. 152, 162-63, 9 S.Ct. 463, 467 (1889)).
Pls.' Mem. in Opp'n to Defs.' Mot. to Dismiss, Ex. 1 at 3 ¶ 4(d).
Counsel for Plaintiffs has thoughtfully argued, both in pleadings and at the hearing, that the Agreement nevertheless contemplates Chan's participation in litigation. Plaintiff first points to Chan's reversionary interest, as described in the Agreement. The reversion provision of the Agreement provides that Data Innovation's ownership interest in the patent will revert to Chan upon the occurrence of certain adverse financial conditions. However, the Court finds that this reversionary interest does not mitigate the effect of the assignment in this case. The financial provisions "simply protect [Chan's] consideration, which consists] of an ongoing royalty stream." Since these reversion provisions do not significantly restrict the scope of Data Innovation's rights in the patents, they do not suffice to give Chan standing to sue.
Id., Ex. 1 at 4-5 ¶ 9(a)-(c).
Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1252 (Fed. Cir. 2000) (citing Vaupel, 944 F.2d at 875).
See id,
Plaintiff also points to another part of the reversion provision, which is triggered if Data Innovation fails "to file an action or counterclaim for infringement" within eighteen (18) months from the date of the Agreement. Plaintiff seeks to equate this provision with the "right of first refusal" provisions of other cases. The Court, however, finds the distinction between these types of clauses to be substantial. The right to bring suit against an individual infringer, upon a licensee's refusal to do so, is an ongoing right that operates within the framework of a licensing agreement. By contrast, the reversionary interest in this case, if triggered, would terminate the entire assignment of interests between Chan and Data Innovation. If enforced at all, the reversion terminates the entirety of Data Innovation's interests in the patent.
Pls.' Mem. in Opp'n to Defs.' Mot. to Dismiss, Ex. 1 at 5 ¶ 9(d)(ii).
See Abbott Labs. v. Diamedix Corp., 47 F.3d 1128, 1129 (Fed. Cir. 1995) (upon exclusive licensee's refusal to bring suit against infringer, licensor had right to bring suit); Grantham v. McGraw-Edison Co., 444 F.2d 210, 213 (7th Cir. 1971) (upon exclusive licensee's election not to bring suit against infringer, licensor had right to bring suit for infringement).
Pls.' Mem. in Opp'n to Defs.' Mot. to Dismiss, Ex. 1 at 4 ¶ 9.
This possibility that Chan may in the future recover full ownership interests in the patent does not preclude a finding that the transfer in this case constitutes an assignment. "An assignment of a patent `may be either absolute, or by way of mortgage and liable to be defeated by non-performance of a condition subsequent. . . ." Thus, the reversionary interest reserved by Chan in this case is "entirely consistent with an assignment."
Vaupel, 944 F.2d at 875 (quoting Waterman v. Mackenzie, 138 U.S. 252, 256, 11 S.Ct. 334, 336(1891)).
Id.
Plaintiffs also cite, as support for Plaintiff Chan's co-plaintiff standing, the portion of the Agreement discussing Chan's participation in "any enforcement action brought by Assignee," in which he might be joined "as a plaintiff at the request of Assignee," At a minimum, this provision does suggest an intention by the parties that Plaintiff Data Innovation reserve the right to join Chan as a co-plaintiff. However, a contractual provision regarding Chan's participation as a co-plaintiff is not determinative of the issue of standing. By the same token that a contractual clause cannot deny standing to a licensee with a sufficient proprietary interest, a contract "cannot negate the requirement that, for co-plaintiff standing, a licensee must have beneficial ownership of some of the patentee's proprietary rights. A patentee may not give a right to sue to a party who has no proprietary interest in the patent."
Pls.' Mem. in Opp'n to Defs.' Mot. to Dismiss, Ex. 1 at 2 ¶ 2(b).
Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1034 (Fed. Cir. 1995) (citing Crown Die Tool Co. v. Nye Tool Machine Works, 261 U.S. 24, 44, 43 S.Ct. 254, 259 (1923)).
The Court has already found that Plaintiff Chan does not possess any of the "proprietary sticks from the bundle of patent rights," which confer a proprietary interest in the patent upon a party. Most importantly, Chan does not have the right to exclude others, a right which is "at the very heart of patent law." By itself, a contractual right to sue, in the absence of any proprietary interest in the patent, is insufficient to establish a party's standing to bring suit. Thus, the existence of a contractual provision between Chan and Data Innovation, envisioning Chan's participation as a co-plaintiff, does not disturb this Court's finding that Chan possesses an insufficient proprietary interest in the patent to have standing to sue.
Id. at 1031.
Penril Datacomm Networks, Inc. v. Rockwell Intern. Corp., 934 F. Supp. 708, 712 (D.Md. 1996).
See id. at 712 n. 3.
In closing, the Court returns to the point that a party's rights under a transfer of patent interests should be determined by the substance of the agreement, rather than the title given to the transfer. While the Court reaches its decision by applying this principle, it notes that the title and substance of the assignment in this case are identical. The parties called the transfer an "assignment," and the transfer conveyed "the entire right, title and interest" in the patents from Chan to Data Innovation. The Court of Appeals for the Federal Circuit has held that "the term `assignment' has a particular meaning in patent law, implying former transfer of title."55 The Court finds that the parties in this case applied the term in accordance with this meaning. The transfer of proprietary rights was absolute and unequivocal. As neither the nominal nor substantive owner of the patent, Chan is without standing to participate as a co-plaintiff in this litigation.56
Pls.' Mem. in Opp'n to Defs.' Mot. to Dismiss, Ex. 1 at 1 ¶ 1.
CONCLUSION
The Court finds that Chan assigned his interest in the patent to Data Innovation. Chan's status under the terms of the Agreement and the Assignment is that of a nonexclusive licensee without substantial proprietary rights in the patent. Chan is merely entitled to a stream of revenue to compensate him for the assignment, as well as a reversionary interest to secure the revenue stream. Without a "share of the proprietary rights associated with patent ownership," Chan lacks co-plaintiff standing to pursue a claim for infringement.57 Accordingly, Chan should be DISMISSED as a party in this litigation.It is therefore ORDERED that Defendants' Motion to Dismiss the Claims of Plaintiff Hark C. Chan is GRANTED.
The Court will dismiss Chan's claims without prejudice. If circumstances between Chan and Data Innovation change at some point in the future, the Court may consider a request to revisit the issue of Chan's standing as a plaintiff at that time. For present purposes, however, it is ORDERED that the claims of Plaintiff Hark C. Chan are DISMISSED WITHOUT PREJUDICE.