Standing to Sue: Licensing Issues to Consider When Pursuing or Defending Against Claims of Patent Infringement

Luminara Worldwide, LLC v. Liown Elecs. Co. provides a great recap of issues to consider when analyzing standing and joinder in patent infringement cases. No. 2015-1671, slip op. at 5-13 (Fed. Cir. Feb. 29, 2016). In Luminara, Disney (the patentee) granted Candella (the exclusive licensee) a license to “make, have made, use, sell, offer for [sale], and import” artificial candles practicing the patented “Artificial Flame Technology.” Id. at 3. Disney later gave Candella the right to sublicense its interest in the Artificial Flame Technology, assign its interest with Disney’s consent, and sue without Disney’s consent. Id. at 4. Candella later merged with plaintiff Luminara. Id. at 5.

Candella sued Liown for infringing one of the Artificial Flame Technology patents. Id. at 4-5. Liown challenged Candella’s standing to sue. Id. at 5. Liown argued that Candella lacked “exclusionary rights” to the Artificial Flame Technology, and that Disney retained substantial rights mandating Disney’s joinder. Id. at 6, 9. The district court denied Liown’s challenge. Id. at 5.

On appeal, the Federal Circuit explained that a party must have “exclusionary rights” to bring suit for patent infringement. Id. at 5. Candella’s standing turned on whether Disney had retained the right to license. Id. at 6. Liown argued that Candella lacked exclusionary rights because Disney retained “for itself and its Affiliates the right throughout the world to make, have made, use, sell, offer for sale and import the Licensed Products.” Id. at 6-8. Liown claimed that the definition of “Affiliates” gave Disney the right to license anyone. Id. at 8. Relying on the parties’ intent, the Court disagreed, noting that under Liown’s interpretation “Candella’s promise of an ‘exclusive’ license would be a fiction.” Id. at 8.

Liown also argued that Disney was a required party because it retained the right to practice the Artificial Flame Technology, title to the patents, responsibility for paying maintenance fees, a financial interest in litigation/licensing, and the right to notice of litigation and licensing activities. Id. at 9, 11-12. The Court explained that an exclusive licensee must have “all substantial rights” to a patent in order to sue without joining the patentee. Id. at 9-10. The Court also noted that joinder protects the alleged infringer from multiple lawsuits, and protects the patentee from losing “substantial rights” if its claims are invalidated or rendered unenforceable. Id. at 10-11.

The Court found that Disney’s retained rights were not “substantial.” Id. at 12. The Court noted that Disney would not lose the right to practice the Artificial Flame Technology if its patents were invalidated or rendered unenforceable. Id. The Court also noted that title, responsibility for maintenance fees, the right to notice, and financial interest alone were not substantial rights. Id. at 12-13.

Luminara is instructive for patentees wishing to maintain control over litigation or give control to a licensee, as well as for accused infringers looking to challenge standing or defend against a second suit brought by a party who should have been joined in the first place. Issues to consider are (1) what parties have right to license, (2) what parties have the right to sue, and (3) what rights have been retained by the patentee. For more detail on the factors considered in analyzing “substantial rights,” see Luminara, No. 2015-1671, slip op. at 11 (Fed. Cir. Feb. 29, 2016).

Source: Luminara Worldwide, LLC v. Liown Elecs. Co., No. 2015-1671 (Fed. Cir. Feb. 29, 2016)

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