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Divided and Conquered? The Precarious Standing of Patent Licensees
In a business world of ever-growing sophistication, the division of patent rights has become increasingly popular among owners of intellectual property. Patent licenses have grown both in number and variety, with agreements that divide enforcement rights from usage rights, that limit licensees to certain geographical areas or types of use, or that put some of these limitations together in a single license.
What are the risks involved in such agreements? Could a party who has contracted for the right to enforce a patent nevertheless be denied standing to sue? To the likely dismay of many licensees, the Federal Circuit has now answered the latter question with a resounding 'yes.' In Int'l Gamco v. Multimedia, the court denied standing to the holder of a so-called 'enterprise license,' which granted exclusive rights to enforce and practice a patent within a limited territory and field of use. Int'l Gamco v. Multimedia Games, Inc., U.S. App. LEXIS 24099 (Fed. Cir. Oct. 15, 2007) (Rader, J.). This ruling comes on the heels of two other standing cases, Propat and Morrow, in which parties that held enforcement rights to a patent but not legal title were barred from pursuing those rights in court. Propat Int'l Corp. v. RPost, Inc., 473 F.3d 1187 (Fed. Cir. 2007); Morrow v. Microsoft Corp., 499 F.3d 1332 (Fed. Cir. 2007). Together, these rulings have set important new guidelines for which kinds of licensees will have independent standing to sue infringers, which will be compelled to join their patentees, and which will be left out in the cold.
Any current or potential party to a patent license agreement should take note of these decisions. In particular, licensees wishing to avoid the fate of the plaintiffs above should think hard before accepting a field-of-use limitation in a patent license, and would be advised to bind the patentee with an affirmative joinder obligation if they do so. Current holders of licenses that divide enforcement from usage rights should consider re-joining those rights by mutual agreement, unless prepared to risk forgoing enforcement of the exclusionary powers of the patent against outsiders altogether. Parties at all stages of the negotiation process should not be fooled by the presence of the word 'exclusive' in a license agreement; in the shifting sands of patent law jurisprudence, true exclusionary power requires a more sure-footed approach.
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