IP News

Patent Co-Owners Cannot Be Involuntarily Joined as Parties

On June 6, 2014, a panel of the Federal Circuit, made up of Judges Newman, Rader, and Dyk, issued a divided opinion in STC.UNM v. Intel Corp., Case No. 2013-1241. The opinion was authored by Judge Rader. In it, the Federal Circuit affirmed the District Court of New Mexico's dismissal of STC.UNM's (STC) patent infringement suit for lack of standing because non-party Sandia Corp., a co-owner of the patent, had not voluntarily joined as co-plaintiff. Judge Newman authored a dissent.

STC, a non-profit arm of the University of Mexico (UNM), was assigned UNM's interests in U.S. Patent No. 5,705,321 (the '321 patent) in 2002 and U.S. Patent No. 6,042,998 (the '998 patent) in 2007. STC co-owned the '321 patent with Sandia Corp., and STC owned the '998 patent outright. During the prosecution of the '998 patent, a terminal disclaimer was filed stating that the '998 patent would only be enforceable during the period in which the '321 and '998 patents were commonly owned.

In 2010, STC sued Intel for infringement of the '998 patent. In December 2011, during the course of discovery, STC assigned an interest in the '998 patent to Sandia. Shortly thereafter, Intel moved for summary judgment, asserting that the '998 patent was unenforceable for failing to comply with the common-ownership requirement of the terminal disclaimer. After granting Intel partial summary judgment for the period when commonality of ownership did not exist, the court moved to the issue of standing, since Sandia, the co-owner, was absent from the case. Relying on Ethicon, Inc. v. United States Surgical Corp., 135 F.3d 1456 (Fed. Cir. 1998), the district court explained 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. Sandia refused to join the case. STC moved for involuntary joinder under Federal Rule of Civil Procedure 19(a). The district court denied this motion, finding that a co-owner must consent to suit, and dismissed the case for lack of standing.

The Federal Circuit affirmed the district court's dismissal, finding that an essential element of Ethicon was that co-owners must voluntarily consent to suit. The court stated that rules of procedure must give way to substantive patent rights, citing 28 U.S.C. '2072. “To remove any doubt, this court holds 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).” Slip op. at 15. The Federal Circuit noted that the limit on a co-owner's right to enforce a patent protects, inter alia , another co-owner's right not to be thrust into costly litigation where his patent is subject to potential invalidation. Id. at 18.

Two scenarios were noted that will overcome the rule against involuntary joinder of a patent owner: When a patent owner 1) has granted an exclusive license, or 2) by agreement, waives his right to refuse to join suit. Id. at 15-16. Neither of these scenarios was present here.

The dissent characterized this holding as inconsistent with precedent, noting that Rule 19 is not permissive, and it is undisputed that Sandia is an indispensable party in this case. Id . at 26. By refusing to apply Rule 19(a), the dissent stated that the panel has created its own regional circuit law for the Federal Rules that deprives co-owner STC of judicial determination of asserted infringement. Id.

IPR Procedural Right to Appeal Does Not Grant Art. III Standing

On June 4, 2014, a unanimous panel of the Federal Circuit, made up of Chief Judge Prost and Judges Rader and Hughes, issued an opinion in Consumer Watchdog v. Wisconsin Alumni Research Foundation, Case No. 2013-1377. The opinion was authored by Judge Rader. In it, the Federal Circuit dismissed Consumer Watchdog's (CW) appeal from the Patent Trial and Appeal Board (PTAB) for lack of standing.

In 2006, CW, a not-for-profit public charity, requested inter partes reexamination of U.S. Patent No. 7,029,913 (the '913 patent), owned by Wisconsin Alumni Research Foundation (WARF). After the Patent Trial and Appeal Board (the Board) affirmed the patentability of claims 1-4 of the '913 patent, CW filed an appeal to the Federal Circuit. The '913 patent is generally directed to human embryonic stem cell cultures. CW alleged no involvement in research or commercial activities involving human embryonic stem cells, nor did it allege to be an actual or prospective competitor of WARF. CW instead alleged that WARF's broad and aggressive assertion of the '913 patent has put a severe burden on taxpayer-funded research in the State of California. CW stated that it filed the reexamination request because it was concerned that the '913 patent allowed WARF to preempt all uses of embryonic stem cells.

After reviewing the bases and requirements of Article III standing, the Federal Circuit concluded that CW lacked standing because it had not shown an “injury in fact” that is “both concrete and particularized, and actual or imminent.” Slip op. at 4. The constitutional standing requirements apply with equal force to appeals from administrative agencies such as the United States Patent and Trademark Office as they do to appeals from district courts. Id . “That said, where Congress has accorded a procedural right to a litigant, such as the right to appeal an administrative decision, certain requirements of standing ' namely immediacy and redressability, as well as prudential aspects that are not part of Article III ' may be relaxed.” Id. at 5. The requirement of injury in fact, however, is a “hard floor of Article III jurisdiction that cannot be removed by statute.” Id.

With those principles in mind, the court searched CW's appeal for any alleged injury beyond the Board denying CW the outcome it desired. Although a statute may create a legal right that constitutes injury when denied (e.g., right to FOIA requests), the only right at issue here was the right to request reexamination and participate where reexamination was granted. Id. at 8. The statute did not guarantee a favorable outcome, so the panel concluded that no injury had occurred, there was only a “general grievance.” Id. at 10. Nor is it enough that the inter partes reexamination statute allows a third party requester to appeal decisions; a statutory procedural right, such as right to appeal, does not eliminate Article III requirements. Id. at 9.

The Federal Circuit left it to future panels to decide whether the preclusive effect of the estoppel provisions could constitute injury in fact in other circumstances.

'Federal Circuit: Suprema v. ITC to Be Reheard En Banc by the Federal Circuit

On May 13, 2014, the Federal Circuit released an order granting rehearing en banc in Suprema, Inc. v. ITC, Case No. 2012-1170, vacating its panel decision from December 2013. The 2013 Suprema panel, made up of Judges Prost, O'Malley, and Reyna, held that exclusion orders by the International Trade Commission (ITC) under 19 U.S.C. '1337(a)(1)(B)(i) cannot be predicated on a theory of induced infringement under 35 U.S.C. '271(b) where direct infringement does not occur until after importation.

Cross Match Technologies, Inc. (Cross Match) initiated proceedings against Suprema, Inc. and Mentalix, Inc. based on the importation of articles that allegedly infringed three of Cross Match's patents. Suprema is a Korean company that manufactures and imports hardware and software for scanning fingerprints. Mentalix is a company located in Plano, Texas that imports the accused articles from Suprema. The Commission found that a number of Suprema's scanners, when used with Mentalix's software, directly infringed Cross Match's patent. The Commission concluded that Suprema had emulated Cross Match's products, was willfully blind to the existing patent, and had actively encouraged Mentalix's infringement. The Commission then issued a limited exclusion order barring the importation of certain scanning devices by or on behalf of Suprema or Mentalix. Suprema and Mentalix (collectively 'Suprema') appealed.

On appeal, Suprema contended that that it did not import 'articles that infringe' because the scanners did not infringe by themselves. Suprema, Inc. v. ITC, 742 F.3d 1350, 1357 (Fed. Cir. 2013). It was undisputed that the scanners have substantial non-infringing uses, so Cross Match defended the Commission's ruling under a theory of induced infringement. Id. Sidestepping whether there was induced infringement, the majority concluded that for '1337(a)(1)(B)(i) exclusion orders, the infringement must occur at or before importation. Id. at 1363. The majority thus found the ITC lacked statutory authority to issue the exclusion order.

Judge Reyna dissented in relevant part, arguing that the majority overlooked the congressional purpose of '1337 ' to provide relief from specific acts of unfair trade by stopping infringement at the border. Id. at 1372-73. According to Judge Reyna, the Commission has addressed induced infringement complaints where infringement occurred after importation for decades, and by striking down this authority, the panel's decision '[creates] a fissure in the dam of the U.S. border,' opening it to circumvention of '1337 and harm to U.S. patent holders. Id.

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Jeffrey S. Ginsberg is a Partner, and Ian Moore is an Associate, in the New York office of Kenyon & Kenyon LLP.

Patent Co-Owners Cannot Be Involuntarily Joined as Parties

On June 6, 2014, a panel of the Federal Circuit, made up of Judges Newman, Rader, and Dyk, issued a divided opinion in STC.UNM v. Intel Corp., Case No. 2013-1241. The opinion was authored by Judge Rader. In it, the Federal Circuit affirmed the District Court of New Mexico's dismissal of STC.UNM's (STC) patent infringement suit for lack of standing because non-party Sandia Corp., a co-owner of the patent, had not voluntarily joined as co-plaintiff. Judge Newman authored a dissent.

STC, a non-profit arm of the University of Mexico (UNM), was assigned UNM's interests in U.S. Patent No. 5,705,321 (the '321 patent) in 2002 and U.S. Patent No. 6,042,998 (the '998 patent) in 2007. STC co-owned the '321 patent with Sandia Corp., and STC owned the '998 patent outright. During the prosecution of the '998 patent, a terminal disclaimer was filed stating that the '998 patent would only be enforceable during the period in which the '321 and '998 patents were commonly owned.

In 2010, STC sued Intel for infringement of the '998 patent. In December 2011, during the course of discovery, STC assigned an interest in the '998 patent to Sandia. Shortly thereafter, Intel moved for summary judgment, asserting that the '998 patent was unenforceable for failing to comply with the common-ownership requirement of the terminal disclaimer. After granting Intel partial summary judgment for the period when commonality of ownership did not exist, the court moved to the issue of standing, since Sandia, the co-owner, was absent from the case. Relying on Ethicon, Inc. v. United States Surgical Corp., 135 F.3d 1456 (Fed. Cir. 1998), the district court explained 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. Sandia refused to join the case. STC moved for involuntary joinder under Federal Rule of Civil Procedure 19(a). The district court denied this motion, finding that a co-owner must consent to suit, and dismissed the case for lack of standing.

The Federal Circuit affirmed the district court's dismissal, finding that an essential element of Ethicon was that co-owners must voluntarily consent to suit. The court stated that rules of procedure must give way to substantive patent rights, citing 28 U.S.C. '2072. “To remove any doubt, this court holds 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).” Slip op. at 15. The Federal Circuit noted that the limit on a co-owner's right to enforce a patent protects, inter alia , another co-owner's right not to be thrust into costly litigation where his patent is subject to potential invalidation. Id. at 18.

Two scenarios were noted that will overcome the rule against involuntary joinder of a patent owner: When a patent owner 1) has granted an exclusive license, or 2) by agreement, waives his right to refuse to join suit. Id. at 15-16. Neither of these scenarios was present here.

The dissent characterized this holding as inconsistent with precedent, noting that Rule 19 is not permissive, and it is undisputed that Sandia is an indispensable party in this case. Id . at 26. By refusing to apply Rule 19(a), the dissent stated that the panel has created its own regional circuit law for the Federal Rules that deprives co-owner STC of judicial determination of asserted infringement. Id.

IPR Procedural Right to Appeal Does Not Grant Art. III Standing

On June 4, 2014, a unanimous panel of the Federal Circuit, made up of Chief Judge Prost and Judges Rader and Hughes, issued an opinion in Consumer Watchdog v. Wisconsin Alumni Research Foundation, Case No. 2013-1377. The opinion was authored by Judge Rader. In it, the Federal Circuit dismissed Consumer Watchdog's (CW) appeal from the Patent Trial and Appeal Board (PTAB) for lack of standing.

In 2006, CW, a not-for-profit public charity, requested inter partes reexamination of U.S. Patent No. 7,029,913 (the '913 patent), owned by Wisconsin Alumni Research Foundation (WARF). After the Patent Trial and Appeal Board (the Board) affirmed the patentability of claims 1-4 of the '913 patent, CW filed an appeal to the Federal Circuit. The '913 patent is generally directed to human embryonic stem cell cultures. CW alleged no involvement in research or commercial activities involving human embryonic stem cells, nor did it allege to be an actual or prospective competitor of WARF. CW instead alleged that WARF's broad and aggressive assertion of the '913 patent has put a severe burden on taxpayer-funded research in the State of California. CW stated that it filed the reexamination request because it was concerned that the '913 patent allowed WARF to preempt all uses of embryonic stem cells.

After reviewing the bases and requirements of Article III standing, the Federal Circuit concluded that CW lacked standing because it had not shown an “injury in fact” that is “both concrete and particularized, and actual or imminent.” Slip op. at 4. The constitutional standing requirements apply with equal force to appeals from administrative agencies such as the United States Patent and Trademark Office as they do to appeals from district courts. Id . “That said, where Congress has accorded a procedural right to a litigant, such as the right to appeal an administrative decision, certain requirements of standing ' namely immediacy and redressability, as well as prudential aspects that are not part of Article III ' may be relaxed.” Id. at 5. The requirement of injury in fact, however, is a “hard floor of Article III jurisdiction that cannot be removed by statute.” Id.

With those principles in mind, the court searched CW's appeal for any alleged injury beyond the Board denying CW the outcome it desired. Although a statute may create a legal right that constitutes injury when denied (e.g., right to FOIA requests), the only right at issue here was the right to request reexamination and participate where reexamination was granted. Id. at 8. The statute did not guarantee a favorable outcome, so the panel concluded that no injury had occurred, there was only a “general grievance.” Id. at 10. Nor is it enough that the inter partes reexamination statute allows a third party requester to appeal decisions; a statutory procedural right, such as right to appeal, does not eliminate Article III requirements. Id. at 9.

The Federal Circuit left it to future panels to decide whether the preclusive effect of the estoppel provisions could constitute injury in fact in other circumstances.

'Federal Circuit: Suprema v. ITC to Be Reheard En Banc by the Federal Circuit

On May 13, 2014, the Federal Circuit released an order granting rehearing en banc in Suprema, Inc. v. ITC, Case No. 2012-1170, vacating its panel decision from December 2013. The 2013 Suprema panel, made up of Judges Prost, O'Malley, and Reyna, held that exclusion orders by the International Trade Commission (ITC) under 19 U.S.C. '1337(a)(1)(B)(i) cannot be predicated on a theory of induced infringement under 35 U.S.C. '271(b) where direct infringement does not occur until after importation.

Cross Match Technologies, Inc. (Cross Match) initiated proceedings against Suprema, Inc. and Mentalix, Inc. based on the importation of articles that allegedly infringed three of Cross Match's patents. Suprema is a Korean company that manufactures and imports hardware and software for scanning fingerprints. Mentalix is a company located in Plano, Texas that imports the accused articles from Suprema. The Commission found that a number of Suprema's scanners, when used with Mentalix's software, directly infringed Cross Match's patent. The Commission concluded that Suprema had emulated Cross Match's products, was willfully blind to the existing patent, and had actively encouraged Mentalix's infringement. The Commission then issued a limited exclusion order barring the importation of certain scanning devices by or on behalf of Suprema or Mentalix. Suprema and Mentalix (collectively 'Suprema') appealed.

On appeal, Suprema contended that that it did not import 'articles that infringe' because the scanners did not infringe by themselves. Suprema, Inc. v. ITC , 742 F.3d 1350, 1357 (Fed. Cir. 2013). It was undisputed that the scanners have substantial non-infringing uses, so Cross Match defended the Commission's ruling under a theory of induced infringement. Id. Sidestepping whether there was induced infringement, the majority concluded that for '1337(a)(1)(B)(i) exclusion orders, the infringement must occur at or before importation. Id. at 1363. The majority thus found the ITC lacked statutory authority to issue the exclusion order.

Judge Reyna dissented in relevant part, arguing that the majority overlooked the congressional purpose of '1337 ' to provide relief from specific acts of unfair trade by stopping infringement at the border. Id. at 1372-73. According to Judge Reyna, the Commission has addressed induced infringement complaints where infringement occurred after importation for decades, and by striking down this authority, the panel's decision '[creates] a fissure in the dam of the U.S. border,' opening it to circumvention of '1337 and harm to U.S. patent holders. Id.

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Jeffrey S. Ginsberg is a Partner, and Ian Moore is an Associate, in the New York office of Kenyon & Kenyon LLP.