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Patent Happenings June 2009
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Highlights
4. ÒDisplaying real-timeÓ data construed not to require a literal instantaneous display
6. ÒHave-madeÓ rights are inherent in right to ÒmakeÓ
7. State statute-of-frauds defeats alleged oral exclusive license
Judicial Happenings
Pleading Intent for Inequitable conduct
Most courts accept that an accused infringer must meet the heightened pleading requirements of Rule 9(b) when pleading allegations of inequitable conduct.[1] This requires that the accused infringer Òmust state with particularity the circumstances constitutingÓ the inequitable conduct.[2] Courts have therefore concluded that in Òpleading inequitable conduct, a party cannot merely rely on vague allegations of fraud and deception but instead, must specify the time, place, and content of any alleged misrepresentation made to the PTO.Ó[3] Inequitable conduct also requires the element of Òintent to deceive.Ó Rule 9(b) provides that Òintent, knowledge, and other conditions of a personÕs mind may be alleged generally.Ó Some have viewed this clause in Rule 9(b) as supporting the contention that a bare bones allegation that material information was withheld with an intent to deceive the Patent Office suffices. That practice has been cast into doubt in view of the Supreme CourtÕs recent opinion in Ashcroft v. Iqbal, No. 07-1015, 2009 WL 1361536 (May 18, 2009).
In Ashcroft, a non-patent case, the Supreme Court rejected a plaintiffÕs argument that a conclusory allegation of intent sufficed to withstand a motion to dismiss in view of Rule 9(b). Instructing that the Òalleged generallyÓ instruction in Rule 9(b) has to be viewed in context with the particularity requirement that rule imposes, the Court held that Rule 9(b) does not dispense with the level of factual plausibility required under Rule 8(a). The Court explained:
Respondent finally maintains that the Federal Rules expressly allow him to allege petitionersÕ discriminatory intent Ògenerally,Ó which he equates with a conclusory allegation. . . . But the Federal Rules do not require courts to credit a complaintÕs conclusory statements without reference to its factual context.
It is true that Rule 9(b) requires particularity when pleading Òfraud or mistake,Ó while allowing Ò[m]alice, intent, knowledge, and other conditions of a personÕs mind [to] be alleged generally.Ó But ÒgenerallyÓ is a relative term. In the context of Rule 9, it is to be compared to the particularity requirement applicable to fraud or mistake. Rule 9 merely excuses a party from pleading discriminatory intent under an elevated pleading standard. It does not give him license to evade the less rigid-though still operative-strictures of Rule 8. And Rule 8 does not empower respondent to plead the bare elements of his cause of action, affix the label Ògeneral allegation,Ó and expect his complaint to survive a motion to dismiss.
Id. at *17. Accordingly, it appears that in view of Ashcroft, accused infringers pleading inequitable conduct allegations must now do more than merely recite a conclusory allegation that material information was withheld with deceptive intent.
The Supreme Court also provided further clarification on Rule 8Õs pleading standards articulated by the Court in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007). The Court held that TwomblyÕs standards apply to all causes of actions, and are not limited to antitrust claims as some have suggested. Id. at *16. The Court also explained that when assessing whether a complaint pleads sufficient facts to make a claim plausible, district courts are not to assume the truth of any legal conclusions. Id. at *13. According to the Court, Òthe tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.Ó Id.
Addressing the plausibility standard required by Rule 8, the Court explained that Ò
[T]he pleading standard Rule 8 announces does not require Òdetailed factual allegations,Ó but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. A pleading that offers Òlabels and conclusionsÓ or Òa formulaic recitation of the elements of a cause of action will not do.Ó Nor does a complaint suffice if it tenders Ònaked assertion[s]Ó devoid of Òfurther factual enhancement.Ó
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to Òstate a claim to relief that is plausible on its face.Ó A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a Òprobability requirement,Ó but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are Òmerely consistent withÓ a defendantÕs liability, it Òstops short of the line between possibility and plausibility of Ôentitlement to relief.ÕÓ
Id. at *12.
Applying this standard to the complaint for discrimination before it, the Court held that purported factual allegations that did nothing more than invoke legal conclusions were not to be taken as true, and therefore these ÒfactsÓ did not count in the analysis of whether the complaint made a sufficient showing of a plausible entitlement to relief.
We begin our analysis by identifying the allegations in the complaint that are not entitled to the assumption of truth. Respondent pleads that petitioners Òknew of, condoned, and willfully and maliciously agreed to subject [him]Ó to harsh conditions of confinement Òas a matter of policy, solely on account of [his] religion, race, and/or national origin and for no legitimate penological interest.Ó The complaint alleges that Ashcroft was the Òprincipal architectÓ of this invidious policy, and that Mueller was ÒinstrumentalÓ in adopting and executing it. These bare assertions, much like the pleading of conspiracy in Twombly, amount to nothing more than a Òformulaic recitation of the elementsÓ of a constitutional discrimination claim, namely, that petitioners adopted a policy Ò Ôbecause of,Õ not merely Ôin spite of,Õ its adverse effects upon an identifiable group.Ó As such, the allegations are conclusory and not entitled to be assumed true. To be clear, we do not reject these bald allegations on the ground that they are unrealistic or nonsensical. We do not so characterize them any more than the Court in Twombly rejected the plaintiffs' express allegation of a ÒÔcontract, combination or conspiracy to prevent competitive entry,Õ Òbecause it thought that claim too chimerical to be maintained. It is the conclusory nature of respondent's allegations, rather than their extravagantly fanciful nature, that disentitles them to the presumption of truth.
Id. at *14.
Given the CourtÕs analysis, one must wonder whether patent infringement pleadings now must contain more detail to meet Rule 8Õs plausibility standard. In the past, many courts have held that infringement pleadings that comply with Form 18 of the Appendix to the Federal Rules of Civil Procedure adequately state a claim.[4] Form 18, as its sample of an infringement allegation, states ÒThe defendant has infringed and is still infringing the Letters Patent by making, selling, and using electric motors that embody the patented invention, and the defendant will continue to do so unless enjoined by this court.Ó Does the bare recitation that a defendant is making or selling unidentified electric motors cross the line from showing only a possibility of infringement to showing a plausibility that the patentee is entitled to relief for patent infringement? Some may rationally say no.
Undoubtedly, Ashcroft will instill new energy into patentees and accused infringers challenging the sufficiency of each others pleadings.
Transfer of Venue
Rightly or wrongly, the Eastern District of TexasÕ track record of denying motions to transfer venue in patent infringement cases has been controversial over the last few years. Indeed, it has even prompted proposed legislative amendments to the patent venue statute, 28 U.S.C. ¤ 1400, which Congress is considering as part of its reform of the patent laws. In what could be deemed an attempt to judicially fix the alleged problem, the Federal Circuit, at the end of December, in TS Tech., granted an accused infringerÕs petition for mandamus and reversed an E.D. of TexasÕs denial of a motion to transfer an infringement action. The Federal Circuit found that the district court clearly abused its discretion in denying the transfer motion where neither the patentee, nor the accused infringer, had any offices in the forum, no sources of proof were in the forum as the documents and physical evidence were in Ohio, Michigan, and Canada, and the forum had no meaningful connection with the dispute.[5] As a result of TS Tech., it appears that the ED Texas has begun to transfer more infringement cases.[6] But it still frequently denies transfer motions.[7]
In March, the E.D. of Texas denied an accused infringerÕs transfer motion in Sanofi-Aventis Deutschland GmbH v. Genentech, Inc.[8] The accused infringer had sought a transfer to its home forum, the N.D. of Cal., where it, and its codefendant, had filed a mirror image declaratory judgment against the patentee a few hours after the patentee had filed its suit. The E.D. of Texas court ruled that since the accused infringer had previously litigated a patent infringement suit in the E.D. Texas forum as a plaintiff, it could not complain that the forum was not convenient. The district court further found that judicial economy would be better served by denying transfer. Noting that the patentee had contested personal jurisdiction in the California declaratory judgment action, the district court concluded that if it retained the suit, the accused infringers could raise their declaratory judgment claims as counterclaims, which would moot the need for the California court to have to address whether it had personal jurisdiction over the patentee. The district court also noted that while many of the accused infringerÕs documents and witnesses were in California, documents of the other accused infringer were on the East Coast. After analyzing additional convenience factors the court concluded that the accused infringer had failed to show that the proposed transferee forum ÒclearlyÓ was more convenient, and therefore concluded that transfer was not warranted.
On the accused infringerÕs petition for mandamus, the Federal Circuit granted the petition and ordered the district court to transfer the case. In re Genentech, Inc., Misc. Dkt. No. 901, 2009 WL 1425474 (Fed. Cir. 2009). Applying Fifth Circuit law, the Federal Circuit instructed that Òmandamus relief in ¤ 1404(a) cases is permitted when the petitioner is able to demonstrate that the denial of transfer was a ÔclearÕ abuse of discretion such that refusing transfer produced a Ôpatently erroneous result.ÕÓ Id. at *8. To determine whether the district court clearly abused its discretion the Federal Circuit analyzed each of the factors the district court considered.
First, the Federal Circuit held that the district court erred in determining that witness location did not favor transfer. It held that the identification of ten witnesses being located in the proposed transferee forum, and no witnesses being located in the forum, favored transfer. The Federal Circuit rejected the district courtÕs conclusion that since the ten witnesses were not ÒkeyÓ witnesses little weight should be given to their location. Id. at *4.
The Federal Circuit also rejected what it labeled a ÒrigidÓ application of the Fifth CircuitÕs Ò100-mileÓ rule whereby the district court, as a reason for denying transfer, relied on the additional travel time witnesses who had to travel from Europe would incur to get from Texas to California. Noting that the European witnesses had to travel a Òsignificant distance no matter where they testify,Ó the Federal Circuit held that the district courtÕs approach was in Òdirect conflict with the more appropriate approach of several other district court decisions.Ó Id.
The Federal Circuit also rejected the district courtÕs contention that the geographically centralized location of the forum made it more convenient where some of the potential witnesses resided in Iowa and the East Coast. Since no potential witness resided in the forum, the Federal Circuit held that the district court Òimproperly used its central location as a consideration in the absence of witnesses within the plaintiffÕs choice of venue.Ó Id. at *5.
The Federal Circuit also faulted the district court for ruling that convenience of witnesses only favored transfer if the transfer Òwould be more convenient for all of the witnesses.Ó Id. It stated that it could not agree with the district courtÕs Òrigid assessment. Because a substantial number of material witnesses reside within the transferee venue and the state of California, and no witnesses reside within the Eastern District of Texas, the district court clearly erred in not determining this factor to weigh substantially in favor of transfer.Ó Id.
The Federal Circuit also rejected the district courtÕs reliance on the fact that the accused infringer had itself previously brought an infringement suit in the forum.[9] Noting that Ò¤ 1404(a) requires Ôindividualized, case-by-case consideration of convenience and fairness,ÕÓ and that accused infringerÕs previous lawsuit did not involve the Òsame parties, witnesses, evidence, and facts,Ó the Federal Circuit determined that the district courtÕs Òconsideration of the previous case was clear error in this case.Ó Id. at *7.
The Federal Circuit also held that the district court erred in considering the issue of whether the transferee court would have personal jurisdiction over the patentee. The patentee had contested personal jurisdiction in the accused infringerÕs California declaratory judgment action. Noting that if it denied transfer to California the declaratory judgment claims of the California action could be asserted in the Texas action, the district court concluded there was a possibility of achieving some judicial economy if it denied transfer. Not addressing the alleged judicial economy to the declaratory judgment action, the Federal Circuit held that the district court erred in considering the personal jurisdiction issue of the California action as being a Òcritical problem, weighing heavily against transfer.Ó Id. at *7. The Federal Circuit explained that
[t]here is no requirement under ¤ 1404(a) that a transferee court have jurisdiction over the plaintiff or that there be sufficient minimum contacts with the plaintiff; there is only a requirement that the transferee court have jurisdiction over the defendants in the transferred complaint. ÒThe minimum-contacts concerns inhere when a party is haled into court without its consent upon pain of a default judgment. These concerns are not present when a plaintiff is forced to litigate his case in another forum.Ó
Id. at *7.
The Federal CircuitÕs ruling in this regard could lead to a facially strange result. The accused infringers could have their noninfringement, invalidity and unenforceability declaratory judgment claims filed in the California forum dismissed for lack of personal jurisdiction over the patentee. But the patenteeÕs infringement claim, to which the accused infringer would raise the same noninfringement, invalidity and unenforceability defenses, if transferred to the California forum, could proceed. Unfortunately, the Federal Circuit did not comment on this potential result and why it does not impact the analysis. The answer appears to lie in the fact that a plaintiff who brings a suit in a federal court bears the risk of ultimately having to litigate in a forum that would not otherwise have personal jurisdiction over the plaintiff. As to the E.D. of TexasÕ concern about helping the California court avoid the jurisdictional issue for the declaratory judgment claim, the Federal CircuitÕs ordering of the transfer appears to achieve this result too. The California court can dismiss the declaratory judgment action, and order the accused infringers to amend their answer in the infringement action to raise the same declaratory judgment claims, and thereby moot the personal jurisdiction issue of the declaratory judgment action.
Finally, the Federal Circuit faulted the district court for placing too much weight on statistics suggesting that the case could be tried faster if it stayed in the forum. The Federal Circuit stated that Òthis factor appears to be the most speculative, and case-disposition statistics may not always tell the whole story. Without attempting to predict how this case would be resolved and which court might resolve it more quickly, we merely note that when, as here, several relevant factors weigh in favor of transfer and others are neutral, then the speed of the transferee district court should not alone outweigh all of those other factors.Ó Id. at *8.
In a second venue-related mandamus petition decided the same day as Genentech, the Federal Circuit denied an accused infringerÕs petition seeking to overturn an E.D. of Tex. courtÕs denial of a motion to transfer venue. In re Volkswagen of Am., Inc., Misc. DCT. No. 897, 2009 WL 1425475, *2-*3 (Fed. Cir. May 22, 2009). The Federal Circuit ruled that where the patentee had two other infringement suits on the same patents pending in the forum against different defendants, the district court could reasonably conclude that judicial efficiency favored not transferring any of the suits so that only one court had to addressed the patents. The court stating that
the existence of multiple lawsuits involving the same issues is a paramount consideration when determining whether a transfer is in the interest of justice. . . . Although these cases may not involve precisely the same issues, there will be significant overlap and a familiarity with the patents could preserve time and resources. Because the district courtÕs decision is based on the rational argument that judicial economy is served by having the same district court try the cases involving the same patents, mandamus is inappropriate under our precedents.
Id. at *2-*3.[10]
In April, the Federal Circuit denied another venue-related mandamus petition seeking to overturn an E.D. of TexasÕs denial of a motion to transfer venue in In re Telular Corp., Misc. Dkt. No. 899, 2009 WL 905472, *2-*3 (Fed. Cir. Apr. 3, 2009) (nonprecedential). The Federal Circuit noted that the accused infringerÕs delay in seeking mandamus weighed against granting the petition. Additionally, the Federal Circuit concluded that the facts did not show that the district court clearly abused its discretion in denying the transfer motion where the patentee resided in Dallas, and therefore litigating in the E.D. of Texas was rationally more convenient for the patentee than litigating in the proposed transferee forum of Chicago.
Product-By-Process Claims
Product-by-process claims describe and claim a product by the process used to make the product, rather than the structural characteristics of the product.[11] Historically, these claims served a useful purpose in the chemical arts where limits on technology prevented an inventor from describing the structural characteristics of some chemical compositions. Since product-by-process claims are directed to the product but explicitly recite process steps for making the product, these claims present the legal issue of whether the process steps serve as claim limitations for purposes of proving infringement and validity.
In its 1985 opinion of In re Thorpe,[12] the Federal Circuit held that since product-by-process claims are directed to the product, the process steps do not count in determining the patentability of the claim. Hence, if prior art showed another process that produced the same product, that prior art would anticipate a product-by-process claim reciting a different process.[13] Applying the logic that claims should be construed the same way in determining infringement and validity, a panel of the Federal Circuit in Scripps Clinic & Research Foundation, an opinion written by Judge Newman, held that Òproduct-by-process claims É are not limited to [the] product prepared by the process set forth in the claims.Ó[14] Hence, under Scripps process steps of product-by-process claim need not be met to show infringement.
A year later, the court revisited the issue and reached a contrary holding in Atlantic Thermoplastics Co.[15] There, in an opinion written by Judge Rader, the panel held that Òprocess terms in product-by-process claims serve as limitations in determining infringement.Ó[16] The Atlantic Thermoplastics court determined that the Scripps Clinic court had failed to analyze relevant Supreme Court precedent, and hence the panel was not bound by the Scripps decision.
As a result of these two opinions, for over sixteen years Federal Circuit law has been split on the issue of whether process steps of a product-by-process claim serve as claim limitations for proving infringement. Sua sponte the Federal Circuit, in an en banc portion of a panel opinion in Abbott Labs. v. Sandoz, Inc., No. 2007-1400, 2009 WL 1371410, *9-*11 (Fed. Cir. May 18, 2009) (en banc), resolved the issue. In an 8 to 3 decision, with Judge Rader writing the majority opinion, and Judge Newman writing a dissenting opinion, the en banc panel held that Òbased on Supreme Court precedent and the treatment of product-by-process claims throughout the years by the PTO and other binding court decisions, this court now restates that Ôprocess terms in product-by-process claims serve as limitations in determining infringement.ÕÓ Id. at *9.
While the court made clear that the process steps of product-by-process claim must be met to show infringement, and expressly overruled Scripps, the courtÕs opinion can be read as confusing the issue of whether the process steps now count for purposes of patentability. Noting that inventors may still use product-by-process claims to protect products that canÕt be described in terms of its structure, the court stated that product-by-process claims Òwill issue subject to the ordinary requirements of patentability.Ó Id. at *10 (emphasis added). While there are several cases holding that process steps donÕt count in assessing patentability, its not clear from the majorityÕs statement if they intended this to remain the law, or if, applying the well-settled principle that claims are construed the same for both validity and infringement,[17] that Abbott also overrules sub silentio prior cases holding that patentability of product-by-process claims is independent of the process steps.
Judge Newman, joined by Judges Lourie and Mayer, dissented in a 39-page opinion. She faulted the courtÕs procedure of addressing the issue en banc without giving the parties and the public notice of the en banc hearing and for announcing a principle which, in her view, requires that claims be Òconstrued differently for validity and for infringement.Ó
ÒReal-TimeÓ did not require Instantaneous Act
The Federal Circuit construed a limitation reciting Òdisplaying real-time dataÓ in Paragon Solutions, LLC v. Timex Corp., No.2008-1516, 2009 WL 1424443, *10-*15 (Fed. Cir. May 22, 2009). The claims were directed to an exercise monitoring system that uses a GPS system and a heart monitoring device to report to the user data regarding location, altitude, velocity, pace, distance traveled, and heart rate during the exercising period. The accused infringer argued that Òreal-timeÓ meant a literal instantaneous display of the data. The district court rejected this proposed construction and construed the limitation to require Òdisplaying data substantially immediately without contextually meaningful delay ÉÓ The Federal Circuit rejected both constructions.
To support its position, the accused infringer relied on statements in the specification criticizing prior art devices that did not ÒinstantaneouslyÓ report data to the user.[18] Examining the statements in more detail, the Federal Circuit noted that the applicant had distinguished over prior art devices that reported data after that exercise was completed. Thus, it concluded that the applicantÕs statements did not speak to whether real-time required a literal instantaneous display or a display with some short delay, therefore, the statements did not support limiting the claim term to a literal instantaneous display. Id. at *11.[19]
Considering the practical realities and limits on the technology, the Federal Circuit noted that it was physically impossible for any device to instantaneously report data since the components after measuring the parameter had to electronically process the data before sending it to the display until. Thus, the court noted that Òwhat the claims describe as Ôdisplaying real-time dataÕ cannot possibly mean displaying data literally instantaneously, because the claims themselves require a transmission that necessarily takes some time, however minute that might be.Ó Id. at *10. A disclosure in the specification that the invention used Òcommercially availableÓ technology further supported the rejection of an ÒinstantaneousÓ requirement since the commercially available GPS Technology available at the applicationÕs filing date was not able to display data literally instantaneously. Id. at *12.
Addressing the district courtÕs construction, the Federal Circuit found it erroneous. It determined that permitting the definition of Òreal timeÓ to depend on whether there was a Òcontextually meaningful delay,Ó resulted in a construction that depended on the specific use of the product since a meaningful delay for one activity could be different from a delay in another activity. Id. at *13. This is improper since an apparatus claim covers Òwhat a device is, not what a device does.Ó Id. The court explained that Ò[c]onstruing a non-functional term in an apparatus claim in a way that makes direct infringement turn on the use to which an accused apparatus is later put confuses rather than clarifies, frustrates the ability of both the patentee and potential infringers to ascertain the propriety of particular activities, and is inconsistent with the notice function central to the patent system.Ó Id.
Arriving at a construction that it viewed as staying true to the evidence, the Federal Circuit construed Òdisplaying real-timeÓ to require Òdisplaying data without intentional delay, given the processing limitations of the system and the time required to accurately measure the data.Ó Id. at *15. Since the record evidence, although showing that the accused products had some delay in the display of data, did not show whether the delay was intentional or beyond the time required to measure and process the data, the Federal Circuit vacated the stipulated judgment of noninfringement and remanded. Id. at *15-*16.
Reconfirming One-Way Test for ODP
The judicially created doctrine of Òobviousness-type double patentingÓ (ODP) seeks to prevent a patent owner and/or applicant from extending the patent rights in its invention by obtaining a second patent with claims that are just an obvious variation of the claims of an earlier issued patent.[20],[21] Typically, this arises where a first patent claims a basic invention and the second patent claims a patentably indistinct improvement on the basic invention. Generally, the courts and PTO apply a one-way test to determine whether challenged claims should be invalidated or rejected for obviousness-type double patenting. Under this test, the decision maker looks to see if the challenged claims of the later-filed application (i.e., the improvement patent) are obvious in view of the claims of the earlier-filed patent (i.e., the patent on the basic invention).[22] In rare circumstances, specifically when the PTO caused a later-filed application to issue before the earlier-filed application, the courts will apply a two-way test. Under the two-way test the claims of the later-filed application must render obvious the claims of the earlier-filed application and the claims of the earlier-filed application must render obvious the claims of the later-filed application.[23]
The Federal Circuit reconfirmed in In re Fallaux, 564 F.3d 1313 (Fed. Cir. May 6, 2009), that the two-way test Òis only appropriate in the unusual circumstance where, inter alia, the United States Patent and Trademark Office (PTO) is solely responsible for the delay in causing the second-filed application to issue prior to the first.Ó Id. at 1316. Applying the one-way test, the PTO rejected the applicantÕs claim in Fallaux. The applicant conceded that its claims were obvious variants of the prior issued patent, but argued that the two-way test should apply. The Federal Circuit affirmed the PTOÕs rejection since it found that there was no evidence that the PTO caused any delay. Indeed, the court found that no impediment prevented the applicant from including the rejected claims in the earlier issued patent as the specification of the earlier issued patent would have supported the rejected claims. Id. at 1316-17.
The applicant also urged that a delay in filing an improvement patent should not be counted against an applicant if the applicant pursues the improvement patent in the Òordinary course of its businessÓ and does not Òproactively manipulate prosecution for an improper purpose or to gain some advantage.Ó Flatly rejecting this contention, the Federal Circuit instructed that the two-way test only applies Òwhen the PTO is at fault for the delay that causes the improvement patent to issue prior to the basic patent.Ó Id. at 1317. It does not apply merely because the applicant Òlacked a nefarious intent to manipulate prosecution.Ó Id.
Inherent ÒHave MadeÓ Rights
ÒHave madeÓ rights refer to a licenseeÕs right to have a licensed patented product made for it by another party who is not separately licensed by the patent holder to practice the patent.[24] Many license agreements will expressly provide for Òhave madeÓ rights in the license grant. But according to the Federal CircuitÕs recent opinion in CoreBrace LLC v. Star Seismic LLC, No. 2008-1502, 2009 WL 1424439 (Fed. Cir. 2009), an express grant of Òhave madeÓ rights is not necessary since Òhave madeÓ rights are inherently granted to any licensee who receives a license of the right to Òmake.Ó
Following a 1964 decision by the Court of Claims,[25] the Federal Circuit explained in CoreBrace that Ò[t]he right to Ômake, use, and sellÕ a product inherently includes the right to have it made by a third party, absent a clear indication of intent to the contrary.Ó Id. at *3. In reaching its holding, the Federal Circuit rejected the patenteeÕs contention that Òhave madeÓ rights should only be found inherent to a license agreement that also grants a right to sublicense. The court concluded that Òa right to have made is not a sublicense, as the contractor who makes for the licensee does not receive a sublicense from the licensee,Ó id. at *4., therefore the inherent nature of Òhave madeÓ rights does not depend on right to sublicense. The court also rejected the contention that only exclusive licenses should convey inherent Òhave madeÓ rights. It stated that Ò[t]he distinction between an exclusive license and a nonexclusive license has no relevance to how a licensee obtains the product it is entitled to make, use, and sell.Ó Id.
Illustrating that an exclusion of Òhave madeÓ rights must be express, the Federal Circuit also rejected the patenteeÕs argument that its general reservation of Òall rights not expressly granted to [the licensee]Ó under the nonexclusive license operated to exclude Òhave madeÓ rights from the license grant. The court held that Ò[b]ecause the right to Ômake, use, and sellÕ a product inherently includes the right to have it made, Ôhave madeÕ rights are included in the License and not excluded by the reservation of rights clause.Ó Id. at *5. Indeed, the court read some of the provisions of the license agreement as specifically contemplating the possibility of third parties manufacturing for the benefit of the licensee. Thus, in the absence of a Òclear intent to exclude Ôhave madeÕ rights from its grant,Ó the Federal Circuit held that such rights were inherently granted. Id. at *6.
Statute of Frauds Defeated Oral Exclusive License
In general, federal law governs whether a patent can be assigned or licensed and state contract law governs whether an agreement effectively assigned or licensed a patent.[26] The Federal Circuit has construed federal patent law to permit an exclusive license to be oral.[27] While federal patent law currently permits oral exclusive licenses, state law may bar an oral patent license if it violates the stateÕs statute of fraud. Although seldom raised, the applicability of state statute of frauds to patent licenses has long been accepted.[28]
In Visioneer, Inc. v. Keyscan, Inc., 2009 WL 1189319, *5 (N.D. Cal. May 4, 2009), the district court invoked the statute of frauds to find that a plaintiff lacked standing to bring an infringement claim. Via a written agreement, the plaintiff held a nonexclusive to the asserted patent. When its standing to maintain suit was challenged, the plaintiff argued that patentee and plaintiff had orally amended the written nonexclusive license to be an exclusive license, allegedly in return for the plaintiffÕs agreement to bring suit against the accused infringer. The district court, doubting whether such an oral license had been truly granted, ruled that even if so, the oral agreement would violate the statute of frauds. The court noted that Òany oral amendment of exclusivity that supercedes a written license to be performed over a period of one year would implicate the California Statute of Frauds and therefore be void.Ó Id. The court found that the nonexclusive license by its written terms expired in 2010, and that the alleged oral exclusive amendment would have been made in 2008. Consequently, the term of the alleged oral exclusive license exceeded one year, and ran afoul of the stateÕs statute of frauds. Id. As a result, the court concluded that the plaintiff only held a nonexclusive license when it commenced the suit. Accordingly, the plaintiff lacked standing at that time. Further, it could not cure the standing defect by joining the patentee since the defect laid in constitutional standing, rather than in prudential standing.[29] The district court, therefore dismissed the infringement suit.
Standing for False Marking Claim
Under the patent false marking statute, 35 U.S.C. ¤ 292, Òa party that falsely marks a product with a patent number can be liable for a civil penalty.Ó[30] The statute expressly provides that Ò[a]ny person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.Ó 35 U.S.C. ¤ 292(b). Courts have construed ¤ 292 as being a qui tam action, and therefore Ò[a]nyone may bring an action under section 292 for falsely marking as ÔpatentedÕ any unpatented Ôarticle.ÕÓ[31] Indeed, earlier this year, a district court rejected a patenteeÕs argument that ¤ 292 should be limited to permit only competitors of the patentee to have standing to bring a false marking claims.[32]
Analyzing the issue of constitutional standing in greater depth for a ¤ 292 action, the district court in Stauffer v. Brooks Bros., Inc., 2009 WL 1357954, *3-*5 (S.D.N.Y. May 14, 2009), held that while ¤ 292 may be brought by anyone, constitutional standing still requires an injury, even for qui tam actions. For ¤ 292 actions, this requires an injury to government or the public at large resulting from the false marking. Applying this injury requirement, the court held that the plaintiffÕs false marking suit, in which the plaintiff had alleged that the defendant falsely marked bow ties with a patent that had expired fifty years ago had to be dismissed for lack of standing. According to the court, the plaintiff failed to allege any harm to the public from the acts of false marking. The plaintiff could not allege that competition had been harmed because the defendantÕs competitors used the same patent marking on their bow ties. The court also stated that it Òdoubt[ed] that the GovernmentÕs interest in seeing its laws enforced could alone be an assignable, concrete injury in fact sufficient to establish a qui tam plaintiffÕs standing.Ó Consequently, without an injury, the plaintiff had no standing to pursue its claim.