A patent owner can lose the right to bring an infringement action by granting a financier the right to sublicense the patent
California court found that a patentee lacked the constitutional capacity to sue for patent infringement because the patentee defaulted on a loan agreement that granted the lender the right to grant the patent to others.
In 2017, Uniloc brought several patent infringement actions against Apple. In one of the actions, the district court declared the only patent claimed invalid because it targeted an ineligible subject matter. Uniloc appealed and the other actions were continued.
While the appeal was pending, Apple discovered evidence compromising Uniloc’s standing. Uniloc received litigation funding from Fortress Credit Co. LLC, and as security for the loan, Fortress received a non-exclusive license, including the right to sublicense Uniloc’s patents. The agreement specified that Uniloc would only grant Fortress such a license following a “default event”, defined as the breach or breach of one of the covenants that required Uniloc to provide a certain amount of income on specific dates.
Apple has decided to dismiss the remaining cases in district court. It argued that Uniloc failed to honor its agreement with Fortress because Uniloc failed to pay Fortress as agreed, granting Fortress the non-exclusive license in the claimed patent and depriving Uniloc of standing. . The court dismissed the petition, noting that the license did not deprive Uniloc of standing but allowed discovery on this issue. These other cases have been suspended inter partes exam before an important discovery.
While this case was on appeal, Apple alerted the Federal Circuit of the permanent challenge and the panel hearing the appeal referred the case back to the district court for discovery and resolution on the standing issue.
The district courtDecision
In pre-trial detention, the district court noted that there are three categories of complainants:
(1) Those who can sue for patent infringement without needing to join other parties. These applicants hold all of the substantive rights to the patents.
(2) Those who can sue for patent infringement and must be joined by the patentee. These applicants have exclusive rights, but not all of the substantive rights to the patent.
(3) Those who cannot sue for infringement and cannot remedy their standing to sue by later joining the patentee. These applicants have no exclusion rights and hold less than all of the substantive rights to the patent.
The court noted that having substantive rights in a patent supports a party’s right to sue under patent law, while exclusion rights in a patent are necessary for meet the standing requirements under the provisions of the US Constitution. For patent infringement claims, statutory status is conferred under Section 281 of the Patent Act, which allows a patentee with substantive rights to the patent to bring an action for patent infringement. However, to have standing to bring an action under the Constitution of the United States, a party must demonstrate concrete, particular and actual or imminent factual harm. The court explained that patent infringement infringes the exclusive right of a party. Thus, without having the rights of exclusion, a party is unable to demonstrate its constitutional quality.
Here, the facts were undisputed: Uniloc did not receive the revenue required under the agreement for the relevant period; Fortress testified that although Uniloc did not meet the income threshold, she did not believe Uniloc was in default; and Uniloc took no action to remedy the defect.
The agreement provided for three mechanisms to cancel the default:
(i) Fortress waives the default in writing,
(ii) Uniloc remedies the default to Fortress’ reasonable satisfaction, or
(iii) an amendment is agreed that expressly remedies the default.
Uniloc did not submit any writing from Fortress waiving the default (option i) and none of the amendments to the agreement provided for express conditions remedying the default (option iii). Instead, Uniloc argued that Fortress’s testimony showed that he did not believe Uniloc had defaulted and that Fortress was reasonably satisfied, as evidenced by the parties’ subsequent amendment (option ii).
The court disagreed. The evidence showed that Uniloc did nothing to solve the problem after its failure. And if Fortress was satisfied with Uniloc’s inaction, that would amount to a waiver, which had to be written. Thus, due to Uniloc’s irremediable default, Fortress had an absolute right to license the claimed patent at the time the case was filed.
The court then concluded that Fortress’s extended rights deprived Uniloc of standing. In the present case, since Fortress held an absolute right to license the claimed patent, Uniloc could not expect that others would not enforce the patent and would not be harmed if others practiced. actually the patent.
The court rejected Uniloc’s argument that there “must always be” a party entitled to sue, holding instead that the parties are free to enter into license agreements which may deprive all holders of the right to sue. interests of standing or potentially destroying the patent right all together.
The court also rejected Uniloc’s argument that the agreement could not remove its standing retroactively since it only gave Fortress a possible right to sub-license. The court found no justification in the agreement for such a limitation.
Because Uniloc did not have exclusionary rights over the claimed patent, it in turn was deprived of constitutional standing to sue, which cannot be remedied even by joining a patent owner in the lawsuit. This case is currently on appeal. SeeCAFC file n ° 21-1568.
Strategy and conclusion
Before bringing an action for patent infringement, a party must have legal and constitutional standing. Loan agreements that license a patent in the event of default can prevent the patent owner from suing for infringement.
The Uniloc vs. Applethe decision can be found here.