A Blog About Intellectual Property Litigation and the District of Delaware

Patent Lawsuit
Libby Levy, CC BY-SA 2.0

Having an exclusive patent license should mean that the licensee has the right to enforce that patent against potential infringers, right? Yes, but the license has to be exclusive.

In a recent opinion, Judge Connolly held that if another entity—even an affiliate company—has the ability to grant a patent license to the defendant, then the plaintiff did not possess standing to bring a patent infringement action against that defendant without also joining the other entity.

Exclusive Licenses: Implied vs. Explicit

There are multiple varieties of "exclusive" licenses. A party may have an implied exclusive license, for example, if a contract gives the licensee the sole right to perform and prohibits the licensor from both performing or granting the right to anyone else. In that case, the licensee has standing to sue on a patent without joining the licensor.

Here, however, the patent owner granted an explicitly "exclusive" license to the plaintiff, including an exclusive right to grant sublicenses. Later, when the plaintiff’s parent company acquired another company, the parties extended plaintiff's exclusive license to include both the original licensee and the affiliate—giving both entities an "exclusive" license with the right to grant sublicenses.

About Those Sublicenses

Just one of the two entities with "exclusive" licenses brought the present suit, without joining the sibling entity as a plaintiff. Defendant then moved to dismiss, arguing that plaintiff lacked standing because it had failed to join the other entity.

In response, plaintiff made a novel argument that it did not need to join that other entity, because defendant would not have been able to obtain a license for the patents-in-suit, even if they had tried. In plaintiff's view, the sibling entity would simply never have granted them a license.

Sublicense Gatekeeper: Ability to Obtain vs. Legal Right to Grant

Judge Connolly rejected that argument, citing the Federal Circuit's Wiav opinion. Under Wiav, the right question is not whether the licensee has the right to exclude all others from practicing the patent, but whether the licensee had the right to exclude the defendants from engaging in the alleged infringing activity. And the defendant's ability to obtain a license elsewhere defeats standing:

[T]he court in WiAV held that in cases involving an express grant of an exclusive patent license, the "exclusive licensee lacks standing to sue a party who has the ability to obtain such a license from another party with the right to grant it."

Judge Connolly held that what mattered was the sibling entity's legal right to grant defendant a license, even if it was undisputed that the sibling entity would never have granted such a license. That is what the Federal Circuit had focused on and, as Judge Connolly noted, standing is not intended to turn on hypothetical questions or conjecture.

Thus, despite the affiliate's undisputed unwillingness to sublicense the patents to the third party, the fact that the affiliate could sublicense the patents meant that the plaintiff did not have the right to exclude the third party from practicing the patents, and therefore lacked standing.

The key takeaway:

This opinion illustrates that an affiliate's willingness (or lack thereof) to license patents to the defendant is irrelevant when assessing the plaintiff's standing. Rather, the only question that matters is whether another party, other than the plaintiff, could have provided a license to the accused infringer by law. If so, then the plaintiff lacks standing.

In other words, if any other party can license the defendant, that party must be joined as a plaintiff, even if the parties agree that none of them ever would license the defendant.

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