In this patent infringement suit, the United States Court of Appeals for the Federal Circuit considered the question of whether a patent holder retained the standing to sue for infringement according to the terms of a licensing agreement it had concluded with a non-party. According to the Court, the issue turned on whether the agreement “transferred all substantial ownership rights to the ‘747 patent” from Contour Optik, the patent holder, to Chic Optic, the nonparty, “in which case Contour lacked standing to sue for infringement, or whether it merely granted Chic a license to that patent, in which case Contour was still the owner of the patent and had standing to sue.” The patent concerned the attachment mechanism between a traditional eyeglass frame and an auxiliary eyeglass frame that housed sunglasses.
Under the terms of the agreement, which neither party disputes, Contour granted Chic (1) the exclusive right to make, use, and sell products covered by the patent in the United States, (2) the right to initiate suit against third parties for patent infringement and retain any damage awards from such actions, and (3) a virtually unrestricted right to sublicense to third parties. Contour also retained the right to bring patent infringement suits if Chic failed to do so within 30 days of receiving notice, as well as the option to contribute up to 50% of litigation expenses incurred in any patent infringement action brought by Chic in exchange for a pro rata share of any subsequent awards received. The agreement also contained a termination clause, specifying a final date after which all of Chic’s rights to the patent would terminate.
In determining whether Contour retained the right to sue on the patent, the Court focused on the question of who “owned” the patent. The Court agreed with the district court’s analysis of terms (1)-(3) of the agreement, which transferred certain rights to Chic that are often associated with ownership of a patent. Nevertheless, the Court ultimately concluded that the agreement constituted a license, not an assignment, based on its analysis of the termination clause. The Court reasoned that however substantial Chic’s rights to the patent were in some respects, those rights were valid for only a limited period of time. Whatever rights Chic possessed up until the date of termination, the Court reasoned, “it is clear that Chic never had all substantial rights to the patent” and furthermore “by having rights for only a limited portion of the patent term, it simply did not own the patent” (emphasis added).
The Court held that an exclusive licensee with rights for only a fixed period of years does not meet the “substantial rights” requirement for ownership, as set forth in the landmark Supreme Court case of Waterman v. MacKenzie, 138 U.S. 252 (1891), and thus concluded that Contour was the true owner of the patent when the complaint was filed and entitled to sue. The Court distinguished the present case, which involved a definite termination date, from those cases cited by the appellee that did not have definite termination dates on the grounds that in the latter cases it was presumable that the transferred patent would never return to the assignor.
The Court went on to note two policy considerations supported by the opinion’s holding that the Contour/Chic agreement was a license, not an assignment. First, the holding protects against multiple lawsuits on the same patent against the same accused infringer. For instance, if Chic were recognized as an assignee, it is possible that the six-year limitation on damages could include a period when both Chic and Contour had rights to sue under the patent. Second, the holding prevents a party with putative patent rights for a limited time, such as Chic, from unilaterally jeopardizing the patent rights of a party with a long-term reversionary interest, such as Contour.
Finally, the Court considered whether the action included all the necessary parties, since the patent infringement suit, which included Aspex Eyewear, Inc. but did not include Chic, was filed several days before Chic executed a sublicense agreement with Aspex Eyewear, Inc. The Court held that determining whether or not there was an implied license between Chic and Aspex prior to the filing of the complaint, and hence whether or not Chic was a necessary party to the action, may involve a factual determination that should be adjudicated by the district court, and accordingly remanded on that issue.