Opinion
No. 02-CV-6581 CJS.
February 23, 2004
Neal L. Slifkin, Esq., Harris Beach LLP, Pittsford, New York, for plaintiff.
Todd E. Zenger, Esq., Kirton McKonkie, Salt Lake City, Utah, for defendant.
DECISION AND ORDER
INTRODUCTION
Now before the Court is defendant's motion [#4] to dismiss the complaint in this action pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, that application is denied.
BACKGROUND
This is an action for patent infringement and unfair competition involving competing manufacturers of golf bags. Plaintiff Dancorp Investors, Inc. ("Dancorp") alleges, in its complaint in this action, that it is the owner of two patents pertaining to golf bags, U.S. Patent Nos. 5,042, 704 ("the '704 patent") and 5,593,077 ("the '077 patent"). Complaint ¶ 9 ("Dancorp is the owner of the '704 and '077 Patents."). Plaintiff alleges that defendant Ogio International, Inc. ("Ogio") is selling golf bags which infringe these patents, and that Ogio is engaging in unfair competition by falsely representing that its golf bags are "licensed, sponsored and/or approved by [p]laintiff." Complaint ¶ 19.
Plaintiff commenced this action on November 12, 2002. On April 24, 2003, prior to the parties conducting any discovery, defendant filed the subject motion [#4] to dismiss for lack of standing and for failure to state a claim. Defendant contends that plaintiff previously assigned its ownership of the patents to General Electric Capital Corporation ("GECC"), and that it therefore lacks standing to sue for infringement of those patents. In support of the motion, defendant submitted copies of "Patent Assignment Abstracts of Title" for the '704 and '077 patents, indicating that on August 24, 2001, plaintiff filed "Assignment[s] of Assignor's Interest" in the patents to GECC with the United States Patent and Trademark Office ("USPTO"). Notably, although the abstract of title does indicate that "assignment[s] of assignors interest" were recorded, it further advises the reader to "see document[s] for details." Def. Memo [#6], Ex. 3 5.
In opposition to the motion, plaintiff adamantly denies that it assigned the patents to GECC, rather, it contends that it merely granted GECC a security interest in them. Plaintiff has submitted an affirmation from its Vice President for Business Development, James J. Kar ("Kar"), in which he unequivocally states that it was a security agreement, and not an assignment, which plaintiff granted to GECC, and that plaintiff "has not transferred it ownership interests in either [the '704 or '077 patents.]" Kar Aff. ¶ 2 (Emphasis in original). Kar further indicates that while defendant's title search may have indicated that an "assignment" was recorded in the USPTO, that designation is the result of a clerical error by the attorney who sent the documents to be recorded. See, Kar Aff. Ex. E. Specifically, Kar contends, the attorney originally filed the security agreement, and correctly noted that the document being filed was a security agreement. However, the filing was subsequently returned by the USPTO, because it failed to set forth the patents' "property number." Kar Aff. Ex. D. When the attorney made the necessary correction and re-filed the document, however, she mistakenly checked a box on the filing cover sheet indicating that the document was an assignment. Id., Ex. E. In her cover letter to the USPTO, though, she indicated that the document was a security agreement. Id., Ex. F ("Enclosed for filing with your office is a corrected Recordation Form Cover Sheet for filing an Intellectual Property Security Agreement and Power of Attorney.").
In its initial set of opposition papers, plaintiff also submitted a copy of an "Intellectual Property Security Agreement" between plaintiff and GECC, which states, in relevant part:
Whereas, pursuant to that certain Loan and Security Agreement dated as the date hereof . . . Lender has agreed to make the Loans and to incur Letter of Credit Obligations for the benefit of Grantor . . . Grantor hereby pledges and grants to Lender a continuing first priority security interest in all of Grantor's right, title and interest in [intellectual property including the '704 and '077 patents] . . . This [agreement] is effective to create a valid and continuing Lien . . . Grantor shall notify Lender immediately if it knows or has reason to know [of any] proceedings in the United States Patent and Trademark Office, the United States Copyright Office or any court regarding Grantor's ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same. . . . . In the event that any of the Intellectual Property Collateral is infringed upon, or misappropriated or diluted by a third party, Grantor shall notify lender promptly after Grantor learns thereof. Grantor shall, unless it shall reasonably determine that such Intellectual Property Collateral is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation or dilution, and shall take such other actions as Lender shall deem appropriate under the circumstances to protect such Intellectual Property Collateral. . . . . The security interests granted pursuant to this Intellectual Property Security Agreement are granted in conjunction with the security interests granted to Lender pursuant to the Loan Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Lender with respect to the security interest in the Intellectual Property Collateral made and granted hereby are more fully set forth in the Loan Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.
Kar. Aff. Ex. A. Plaintiff also submitted a copy of the power of attorney form which it gave to GECC in conjunction with the loan and security agreements, which states, in relevant part:
This Power of Attorney is executed and delivered . . . under a Loan and Security Agreement dated as even date herewith. . . . [T]his Power of Attorney . . . is intended to grant to Attorney unconditionally the authority to take and perform the action contemplated herein. . . . The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Credit Party without Attorney's written consent upon payment in full of all Obligations due to Attorney under the Loan Documents. . . . Credit Party hereby grants to Attorney the power and right, on behalf of Credit Party . . . to do the following:
(a) change the address for delivery of mail, open mail for Credit Party, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse and receive payments of, any checks, drafts, notes, acceptances, or other instruments for the payment of moneys due, and sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Credit Party;
(b) effect any repairs to any asset of Credit Party. . . .
(c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Credit Party. . . .
(d) defend any suit, action or proceeding brought against Credit Party if Credit Party does not defend such suit, action or proceeding or if Attorney believes that Credit Party is not pursuing such defense in a manner that will maximize the recovery to Attorney. . . .
(e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction . . . or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Credit Party whenever payable and to enforce any other right in respect of Credit Party's property;
(f) sell, transfer, pledge, compromise payment or make any other agreement with respect to, or otherwise deal with any property of Credit Party, and execute, in connection with such sale or action, and endorsements, assignments or other instruments of conveyance or transfer in connection therewith;Id., Ex. B. However, in the loan agreement, which the Court has yet to discuss, GECC was only given the right to use the power of attorney in the event that plaintiff defaulted under the loan agreement.
On December 11, 2003, counsel for both parties appeared before the undersigned to argue the motion. Shortly before that appearance, plaintiff's counsel allowed defendant's attorney to review a copy of the actual loan agreement between plaintiff and GECC. Plaintiff's counsel did not, however, at that time, provide the agreement to the Court in opposition to the motion, because of concerns over certain proprietary information contained within the agreement. Nonetheless, during oral argument, defendant's counsel stated that the loan agreement conclusively established that plaintiff had assigned its rights to GECC, while plaintiff's counsel maintained that it did not. At that time, plaintiff's counsel further indicated that he had obtained an affidavit from GECC, indicating that plaintiff had not assigned the subject patents. However, that affidavit had also not been supplied to the Court. Accordingly, the Court adjourned the proceedings, to allow that parties to work out a confidentiality agreement and to supplement their submissions. Subsequently, the parties reached such an agreement, plaintiff provided a copy of the loan agreement to defendant, and both parties filed supplemental memorandums of law. Plaintiff also filed the security agreement and the aforementioned declaration of GECC with the Court under seal.
The loan agreement between plaintiff and GECC, entitled "Loan and Security Agreement," states, in relevant part:
6. SECURITY INTEREST
6.1 Grant of Security Interest. (a) As collateral security for the prompt and complete payment and performance of the Obligations, each of the Borrower [sic] and any other Credit Party executing this Agreement hereby grants to the Lender a security interest in and Lien upon all of its property and assets. . . . (b) Borrower, Lender and each other Credit Party executing this Agreement agree that this Agreement creates, and is intended to create, valid and continuing Liens upon the Collateral in favor of Lender. Borrower and each other Credit Party executing this Agreement represents, warrants and promises to Lender that: (i) Borrower and each other Credit Party granting a Lien in Collateral is the sole owner of each item of the Collateral upon which it purports to grant a Lien . . . and has good and marketable title thereto. . . . (Ii) the security interests granted pursuant to this Agreement . . . will constitute valid perfected security interests in all of the Collateral in favor of the Lender as security for the prompt and complete payment and performance of the Obligations. . . .
6.2 Lender's Rights. (a) Lender may, (i) at any time in Lender's own name or in the name of Borrower, communicate with Account Debtors, parties to Contracts, and obligors in respect of Instruments, Chattel Paper or other Collateral to verify to Lender's satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper or other collateral; and (ii) at any time and without prior notice to Borrower or any other Credit Party, notify Account Debtors, parties to Contracts, and obligors in respect of Chattel Paper, Instruments or other Collateral that the Collateral has been assigned to Lender and that payments shall be made directly to Lender. . . . .
6.3 Lender's Appointment as Attorney-in-fact. On the Closing Date, Borrower and each other Credit Party executing this Agreement shall execute and deliver a Power of Attorney. . . . The power of attorney granted pursuant to the Power of Attorney and all powers granted under any Loan Document are powers coupled with an interest and shall be irrevocable until the Termination Date. The powers conferred on Lender under the Power of Attorney are solely to protect Lender's interests in the Collateral and shall not impose any duty upon it to exercise such powers. Lender agrees not to exercise any power or authority granted under the Power of Attorney unless an Event of Default has occurred and is continuing.. . . .
6.4 Grant of License to Use Intellectual Property Collateral. Borrower and each other Credit Party executing this Agreement hereby grants to Lender an irrevocable, non-exclusive license ( exercisable upon the occurrence and during the continuation of an Event of Default without payment of royalty or other compensation to Borrower or such Credit Party) to use, transfer, license or sublicense any Intellectual Property now owned, licensed to, or hereafter acquired by Borrower or such Credit Party. . . .
7.2 Remedies. . . . (b) . . . Borrower and each other Credit Party executing this Agreement expressly agrees that upon the occurrence of any Event of Default, Lender may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver said Collateral. . . .
Slifkin Declaration, Ex. C (Italics added). The agreement expressly states that it is to be governed, construed, and enforced in accordance with the law of the State of New York. Id. at § 9.9.
The GECC declaration, executed by Robert A. Miller on behalf of GECC, states that on or about August 24, 2001, plaintiff and GECC executed the security agreement. Miller further states:
As part of that loan transaction, Dancorp granted to GECC a power of attorney, only exercisable and only to be used in the event of a default under the Loan Agreement. . . . GECC has not exercised the power of attorney. . . . GECC has no ownership interest in the '077 and '704 Patents, other than a security interest. . . . Dancorp has the right to bring suit to enforce the '704 and '077 Patents. . . . Under the Loan Agreement, unless and until there has been an event of default, GECC does not have the right to enforce the patents, bring suit, or assign or transfer any rights in the patents.
Slifkin Declaration, Ex. A.
The parties having supplemented their submissions, the Court again conducted oral argument, on January 28, 2004, with counsel for both parties appearing by telephone. Defendant's counsel contended that the loan agreement, security agreement, and power of attorney, when viewed together, established that plaintiff did in fact assign its ownership rights in the patents to GECC. Plaintiff's counsel, meanwhile, maintained that the documents establish that plaintiff only gave GECC a security interest in the patents, and that plaintiff therefore retains ownership of the patents and has standing to bring this action.
ANALYSIS
35 U.S.C. § 281 provides that "[a] patentee shall have remedy by civil action for infringement of his patent." "The word `patentee' 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). Clearly, the Court's ability to exercise subject matter jurisdiction over this case depends upon plaintiff's standing. See, Jim Arnold Corp. v. Hydrotech Systems, Inc., 109 F.3d 1567, 1571 (Fed. Cir. 1997) ("To invoke the jurisdiction of a federal court under [28 U.S.C.] § 1338, it is necessary that plaintiff allege facts that demonstrate that he . . . owns the patent rights on which the infringement suit is premised."), cert. denied, 522 U.S. 933, 118 S.Ct. 338 (1997); see also, Paradise Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304, 1308 (Fed. Cir. 2003) (Discussing that, for a district court to have federal subject matter jurisdiction in a patent infringement action, the plaintiff must have standing, i.e., he must be a patentee within the meaning of 35 U.S.C. §§ 100(d) 281.). Consequently, the Court will treat defendant's motion, as it pertains to the patent infringement claims, as a motion under Rule 12(b)(1) of the Federal Rules of Civil Procedure.
The law to be applied on a 12(b)(1) motion is well settled:
A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it. It is well ingrained in the law that subject-matter jurisdiction can be called into question either by challenging the sufficiency of the allegation or by challenging the accuracy of the jurisdictional facts alleged. Where a defendant objects to a plaintiff's jurisdictional pleading, the standard of review is the same as the familiar Rule 12(b)(6) requirement: the court must take all facts alleged in the complaint as true and draw all reasonable inferences in favor of plaintiff. But where evidence relevant to the jurisdictional question is before the court, the district court may refer to that evidence. Thus, in resolving the question of jurisdiction, the district court can refer to evidence outside the pleadings and the plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists.Davis v. Commercial Bank of New York, 275 F.Supp.2d 418, 422 (S.D.N.Y. 2003) (Emphasis in original, citations and internal quotation marks omitted).
In the instant case, the agreement between plaintiff and GECC is expressly governed by the law of New York State. Accordingly, whether or not the agreement between plaintiff and G.E. Capital amounts to an "assignment" is an issue to be determined under the law of New York State, Aini v. Sun Taiyang Co., Ltd., 964 F.Supp. 762, 778 (S.D.N.Y. 1997), aff'd, 159 F.3d 1348 (2d Cir. 1998), which is well settled:
An assignment is a transfer or setting over of property, or of some right or interest therein, from one person to another, and, unless in some way qualified, it is properly the transfer of one whole interest in an estate or chattel or other thing . . . While New York law requires no special form or forms to effect an assignment, the present surrender of the putative assignor's right, title and interest is essential to a valid assignment. . . . The substance, not the form, prevails in determining whether a particular transaction constitutes an assignment. As in any other contract dispute, the issue ultimately depends upon the intention of the parties.Id. (Citations and internal quotation marks omitted); see also, Vaupel Textilmaschinen Kg V. Meccanica Euro Italia S.P.A., 944 F.2d 870, 874 (Fed. Cir. 1991) ("To determine whether a provision in an agreement constitutes an assignment or a license, one must ascertain the intention of the parties and examine the substance of what was granted.").
Applying these principles to the facts of this case, the Court finds that plaintiff has proven by a preponderance of evidence that it did not assign the patents to GECC. First and foremost, both plaintiff and GECC agree that plaintiff did not do so. Moreover, the Court believes that this assertion is fully supported by the relevant documents. Although the loan agreement uses the term "assignment" once, the Court finds that, when read as a whole, the agreement does not purport to presently transfer plaintiff's title. Rather, under the terms of the loan agreement, GECC was merely given a lien on the collateral, and was not given authority to take possession of the collateral or exercise control over it unless plaintiff defaulted on the loan. Even upon default, the loan agreement envisions that GECC would need a license from plaintiff to use the intellectual property collateral, which it obviously would not need if it already owned the patents. See, Loan Agreement § 6.4. Moreover, the security agreement refers to plaintiff's continued "ownership" of the patents, and reserves to plaintiff the right to "sue for infringement," which only the patentee may do. Similarly, the Court does not believe that the power of attorney supports defendant's contention that an assignment took place. See, Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 17-18 (2d Cir. 1997) ("A provision by which one person grants another the power to sue on and collect on a claim confers on the grantee a power of attorney with respect to that claim. The grant of a power of attorney, however, is not the equivalent of an assignment of ownership; and, standing alone, a power of attorney does not enable the grantee to bring suit in his own name.") (Citations omitted). To the contrary, the Court believes that the power of attorney from plaintiff to GECC demonstrates that plaintiff retained ownership of the patents, since there would have been no need for the power of attorney if plaintiff had transferred ownership to GECC. In any event, the loan agreement specifies that GECC may only use the power of attorney if plaintiff were to default on the loan, which it has not done.
The Court notes that this use of the word "assignment" appears in § 6.2 of the loan agreement, entitled "Lender's Rights." Based upon a reading of the entire agreement, it appears that this provision was only meant to describe GECC's rights upon a default.
Moreover, even if the agreement between plaintiff and GECC could be characterized as an "assignment" under New York law, the inquiry does not stop there. In Waterman v. Mackenzie, 138 U.S. 252, 256, 11 S.Ct. 334 (1891), the U.S. Supreme Court stated that, "whether a transfer of a particular right or interest under a patent is an assignment or a license does not depend upon the name by which it calls itself, but upon the legal effect of its provisions." The Court in Waterman further stated:
The patentee or his assigns may, by instrument in writing, assign, grant, and convey either (1) the whole patent, comprising the exclusive right to make, use, and vend the invention throughout the United States; or (2) an undivided part of share of that exclusive right; or (3) the exclusive right under the patent within and throughout a specified part of the United States. A transfer of either of these three kinds of interests is an assignment, properly speaking, and vests in the assignee a title in so much of the patent itself, with a right to sue infringers. . . . Any assignment or transfer, short of one of these, is a mere license, giving the licensee no title in the patent, and no right to sue at law in his own name for an infringement. . . . An assignment of the . . . patent . . . may be either absolute or by way of mortgage, and liable to be defeated by non-performance of a condition subsequent. . . .Waterman v. Mackenzie, 11 S.Ct. at 335-36. While it does not appear that the Second Circuit has addressed the precise issue here, that is, whether or not the mere granting of a security interest in a patent amounts to an "assignment" within the meaning of Waterman, at least one Circuit has found that it does not. See, In re Cybernetic Servs., Inc., 252 F.3d 1039, 1052 (9th Cir. 2001) ("In summary, the statute's text, context, and structure, when read in the light of Supreme Court precedent, compel the conclusion that a security interest in a patent that does not involve a transfer of the rights of ownership is a "mere license" and is not an "assignment, grant or conveyance" within the meaning of 35 U.S.C. § 261."); see also, V.T. Thomas v. Tomco Acquisitions, Inc., 776 F.Supp. 431, 434-35 (E.D. Wis. 1991) (Presupposing that the mere granting of a security interest in patents did not amount to an assignment, but that the subsequent surrender of the collateral, following default and foreclosure, did.). Similarly, this Court finds that where, as here, the patent owner has given only a security interest in the patent, and has not defaulted on the loan or surrendered the collateral, it retains standing to sue for infringement.
CONCLUSION
Accordingly, defendant's motion to dismiss [#4] is denied.