'; Rethink Joint Development Agreements (or risk losing standing to enforce co-owned patents)

Rethink Joint Development Agreements (or risk losing standing to enforce co-owned patents)

May 11, 2015 Chicago Daily Law Bulletin

When a patented invention is owned by multiple parties, each party has the right to use and license the invention. So is it surprising that each co-owner is not accorded an unrestricted right to enforce the patent to stop unauthorized use of the invention? In view of the Federal Circuit’s decision in STC.UNM v. Intel Corp., if a co-owner of a patent refuses to join in a suit for patent infringement, then that lawsuit cannot proceed, regardless of Rule 19 of the Federal Rules of Civil Procedure concerning involuntary joinder. Accordingly, rights to bring a patent infringement lawsuit on a co-owned patent should be decided prior to entering a joint development agreement.

In its STC.UNM v. Intel Corp. opinion, the Federal Circuit held that when a first co-owner of a patent refuses to join in a patent infringement lawsuit brought by a second co-owner, the second co-owner lacks standing to bring the lawsuit. 754 F.3d 940, 946 (Fed. Cir. 2014). In this decision, U.S. Patent No. 6,042,998 (the ‘998 patent) was asserted by STC.UNM against Intel Corp. Id. at 941. During the underlying lawsuit, it was determined that the ‘998 patent was co-owned by STC.UNM and Sandia Corp. Id. at 943. However, Sandia refused to join the lawsuit in order to take a neutral position in the matter. Id. The district court granted a motion to dismiss filed by Intel based on a lack of standing to sue because Sandia would not join the suit. Id. In granting this motion, the district court decided that “when a patent is co-owned, a co-owner seeking to enforce the patent must join all other co-owners as plaintiffs to establish standing.” Id. at 944.

STC.UNM challenged the district court’s decision to grant the motion to dismiss by asserting that it was contrary to Rule 19(a) of the Federal Rules of Civil Procedure. Namely, that there should be no bar to involuntarily joining Sandia in the lawsuit. Id. at 945. In its decision, the Federal Circuit states, “that the right of a patent co-owner to impede an infringement suit brought by another co-owner is a substantive right that trumps the procedural rule for involuntary joinder under Rule 19(a).” Id. at 946.

The Federal Circuit notes two exceptions to this rule. The first is where a patent owner has granted an exclusive license. Id. In this scenario, the patent owner has created a “relationship of trust” with its licensee, and can thereby be involuntarily joined as a plaintiff in the licensee’s infringement lawsuit. Id. The second exception is where a co-owner has waived any right to refuse to join the lawsuit. Id. In this scenario, because the co-owner has waived the right to refuse to join the lawsuit, the other co-owner(s) may involuntarily join in the suit. Id.

STC.UNM filed a writ of certiorari to the U.S. Supreme Court, asking the Court to determine whether Rule 19(a) is trumped by the so-called “substantive rule” that a co-owner of a patent can impede an infringement suit brought by another co-owner. Petition for Certiorari, STC.UNM v. Intel Corp., No. 14-717 (U.S. Dec. 22, 2014). The Court denied STC.UNM’s request. Petition for Certiorari, STC.UNM v. Intel Corp., No. 14-717 (U.S. Mar. 30, 2015). The Federal Circuit’s decision therefore stands.

This decision has broad implications for any joint development yielding co-owned patents, because if just one co-owner of a jointly owned patent refuses to join an infringement suit, the remaining owners would be barred from enforcing their patent rights. To safeguard against this pitfall, participants in any joint development should specify at the outset of the project the duties and obligations owed to each other in enforcing any co-owned patents. There are a number of ways to accomplish this.

One approach to avoid the STC.UNM rule is to grant an exclusive right to enforce the patent to one of the co-owners. As discussed in the STC.UNM opinion, granting an exclusive license of rights creates a relationship of trust that allows the granting party to be involuntarily joined in the exclusive licensee’s lawsuit. In order to implement this strategy, during negotiations at the time of drafting the joint development agreement, the parties could determine a single entity that will enforce any co-owned patents. A drawback to this approach is that it grants all of the responsibility for asserting the co-owned patents to a single entity. This could be problematic in that the various parties participating in the joint development may have different practical interests in the patent, but only a single party would be capable of bringing suit.

Another approach to avoid the pitfalls arising from the STC.UNM opinion would have the parties to a joint development grant exclusive field of use licenses to each other. The licenses would be distributed to the various parties based on their interests in using the patent in a particular field or application. Presumably, the granting of an exclusive field of use license would be viewed by a court making the determination whether to involuntarily join a party to a lawsuit as creating a relationship of trust between the parties that would allow joinder in any lawsuit. However, the ability to grant exclusive field of use licenses assumes there are multiple fields of use, with no overlapping interests among the parties to the joint development.

Yet another approach, and one that is expressly acknowledged in the STC.UNM opinion, is to have each party in the joint development waive their right to refuse to join in a subsequent patent infringement lawsuit. In this manner, if any party refuses to later join as a plaintiff in an infringement suit, then that party may be involuntarily joined because they waived their right to refuse. Not only does this approach circumvent the pitfalls created by the STC.UNM opinion, but it has the added benefit of not requiring the parties to determine upfront how the rights in the patent should be divided.