Federal Circuit Rules That Explicit Assignment of Right to Sue without Transfer of All Substantial Patent Rights Is Insufficient

The court started its analysis by re-stating that there are three groups of parties that are entitled to bring a patent suit: (1) patentee, (2) successors in title to patentee, (3) transferee of all substantial rights in the patent for standing purposes. Propat’s first argument was that Authentix transferred to it substantial rights in its patent, which entitled Propat to sue in its own name “without naming Authentix as a co-plaintiff.” The Federal Circuit agreed with the district court’s three arguments that the transferred rights were not substantial and did not give Propat standing to sue:
(i) the agreement did not assign the right to make, use and sell the invention, it assigned only the power to enforce or license such rights;
(ii) the granted rights were not exclusive (Authentix could seek new patents in the same invention and retained an implicit right to practice it);
(iii) Propat’s rights under the agreement were not assignable, unless with Authentix’ consent.
The Federal Circuit also pointed out additional facts that supported the district court’s conclusion:
(iv) the agreement expressly provided that Authentix remained the owner of the patent;
(v) Authentix remained responsible for maintaining the patent, which is an indication of retention of ownership interest, recognized by the court.

The Federal Circuit particularly emphasized that Authentix retained economic interest in the patent and “substantial measure of control over decisions affecting the patent rights.” Authentix received the licensing royalties as well as proceeds of judgments or settlements arising out of litigation (less Propat’s percentage for its activities). In the Federal Circuit’s view, this was consistent with retaining ownership, but outsourcing licensing and litigating services. Authentix controlled Propat’s licensing or litigating, because either of these activities required its prior approval.

Likewise, the Federal Circuit emphasized that the right to dispose freely of an asset is inherent to the ownership. Finally, the Court found particularly telling that Authentix had the right to terminate the agreement and eliminate all of the Propat’s rights at Authentix’s discretion. The totality of these facts demonstrated that the “agreement does not grant Propat all substantial rights under the patent.” Turning then to the case law, the court said that “a ‘right to sue’ clause in a contract, unaccompanied by the transfer of other incidents of ownership, does not constitute an assignment of the patent rights that entitles the transferee to sue in its own name.”

The Court then turned to Propat’s alternative argument that even if it lacked substantial rights to sue on its own, the district court should have allowed it to join Authentix as a party and continue the action. In response to this argument, the Federal Circuit held that a party like Propat, that is neither a patentee, nor patentee successor or transferee of substantial interest, could have standing to sue under one condition. This condition was that the “party ha[d] a legally protected interest in the patent …, so that it can be said to suffer legal injury from an act of infringement.” From the analysis of the relationship between Authentix and Propat the Court concluded that Propat’s status is more “of an agent than a co-owner.” The agreement between the two parties did not grant Propat “rights in the patent sufficient to sue, even with Authentix as a co-plaintiff.”