The Software IP Report

Patent “Assignee” Lacks Standing to Sue

By Charles Bieneman

Categories: Patent Civil Procedure, The Software IP Report

Clouding IP lacked standing to sue to enforce a set of patents it had purportedly purchased under a “Patent Assignment Agreement” because rights retained by Symantec, the seller, prevented Clouding from obtaining “substantially all rights” in the patents.  Clouding IP LLC v. AT&T Inc., No. 1:13-cv-01342 (D. Del. Jul 28, 2014). The Court’s consideration of the rights retained by Symantec, and the factors preventing Clouding from having standing to assert the patents, provide a helpful reminder for parties entering into patent assignment or license agreements.  Parties sued for patent infringement will take note as well.

Clouding had sued over 10 defendants alleging that each defendant infringed claims of some or all of 14 patents.  Two of the defendants, Amazon and Google, brought motions to dismiss under FRCP 12(b)(1) for lack of subject matter jurisdiction, alleging that Clouding lacked standing to enforce the patents. The court granted the motions.  Clouding had constitutional standing (the Article III “case or controversy” requirement was satisfied).  However, Clouding lacked “prudential standing” because Clouding was not asserting its “own legal rights,” but instead relied “on the rights or interests of third parties.”

The court quoted the Federal Circuit’s explanation of the patent as being “a bundle of rights which may be divided into signed, or retained in whole or part.” A party having “all patent rights – the entire bundle of sticks” could sue in its own name, as could a party holding “all substantial rights.” Exclusive licensees generally have constitutional standing, although joinder of the transferor of exclusionary interests is usually required “to satisfy prudential standing concerns.” However, “a bare licensee” lacks standing, and could not cure that lack “by joining the patentee as a party.”

Clouding contended that its assignment agreement with Symantec gave it “legal title” to the patents, and therefore conferred standing to sue. However, the agreement’s title was not determinative. Instead, the court had to look at the intentions of the parties based on the rights actually transferred.  Here, the agreement conveyed “all of Seller’s right, title, and interest in and to the Assigned Patent Rights,” but did so “subject to the terms of this Agreement.” Those terms prevented Clouding from obtaining “all substantial rights.”

In particular, Clouding did not obtain “all substantial rights” to the patents because it did not obtain:

• The full right to exclude others from practicing the patents, because Symantec retained the right to sub-license to its customers, and some pre-existing sub-licensees in fact could continue to grant sub-licenses;
• The right to bring suit, because Clouding had “only a right of first refusal to sue,” a power that was “far less than a true owner’s power to indulge infringement;” if Clouding had the right to bring suit in addition to Symantec, “the same accused infringers” could face risk of “multiple litigations.”
• The full right to assign; although Symantec lacked a “blanket veto” on assignments, there was a “restraint on alienation” on Clouding that the court found to be “nonetheless considerable because Symantec could withhold consent to transfer patent rights under a number of scenarios.
• The full right to license. Although Clouding could grant licenses, Symantec kept “considerable control over Clouding’s ability to license,” including requiring consent to license on various terms.
• Other rights, such as the right to all of the recovery from an infringement suit, the right not to pay maintenance fees, and other rights.

It will be interesting to see what arguments Clouding marshals assuming that it appeals to the Federal Circuit, as surely it will.