Standing to Sue for Patent Infringement is Not Affected by an Agreement to Transfer All Proceeds...
Tuesday, August 1, 2017
Standing to Sue for Patent Infringement is Not Affected by an Agreement to Transfer All Proceeds from Patent Litigation
By John Paul, Brian Kacedon, Robert MacKichan, and Ryan Ellis
Edited by Cecilia Sanabria
(Authors and editors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.)
Abstract: To determine whether a plaintiff has standing to sue on its own for patent infringement, courts start by examining whether the plaintiff has title to the patents or received an assignment or exclusive license that conveys “all substantial rights.” In Agarwal v. Buchanan, a California court ruled that the plaintiff, who had acquired rights in the asserted patents in exchange for “100 percent of any gross proceeds obtained from monetization efforts,” had standing to sue for patent infringement.
The patents in suit issued to two inventors who conveyed “all substantial rights, title and interests in all inventions, improvements, and obvious variants” to Bayshore Patent LLC (“Bayshore”) in exchange for “50 percent of any gross proceeds” obtained through monetization, including “licensing and litigation.” The inventors retained a reversionary interest in the event that “Bayshore was unable or unwilling to pursue monetization efforts.”
Bayshore later conveyed “all substantial rights, title and interests in all inventions, improvements, and obvious variants thereof, disclosed, described, and/or claimed” to the CEO of Bayshore, Amit Agarwal, in exchange for “‘100 percent of any gross proceeds’ obtained from monetization efforts.” Bayshore also retained a reversionary interest if Agarwal was “unable or unwilling to pursue monetization efforts.”
Agarwal filed a patent infringement suit against Jeff Buchanan and his businesses, and in response, Buchanan filed a motion to dismiss the lawsuit for lack of standing.
The Agarwal v. Buchanan Decision
In reviewing the transfer from the inventors to Bayshore, the court considered the “intentions of the parties” as well as the “substance of what was granted” by looking to the terms of the agreement to determine if the transfer was an assignment. Specifically, the court considered whether the agreement transferred the “exclusive right to make, use, and sell patented products/services and the right to sue alleged infringers.”
The court noted that the parties demonstrated an intent to create an assignment because the agreement referred to the parties as assignor and assignee and it also stated that “all substantial rights” were assigned.
The agreement also allowed Bayshore to sue for past infringement, which Buchanan argued was more specific than “all substantial rights” and therefore, excludes the rights necessary to create an assignment. The court disagreed, noting that the right to sue for past infringement is not automatically transferred and that the parties included the provision to manifest an intent to transfer the right. The court found that this was further proof of intent to create an assignment because rather than narrowing the scope of the rights, the parties included additional rights not automatically included in an assignment.
Finally, the court found that the inventors who made the transfer to Bayshore retained minimal control over the patents: the agreement to pay 50 percent of monetization was merely “consideration for the transfer” and the reversionary interest was “entirely consistent with an assignment” because it did not indicate an intent to transfer less than “all substantial rights.”
Having determined that the first agreement assigned the necessary rights to confer standing to Bayshore, the court next considered the subsequent transfer from Bayshore to Agarwal, which was almost identical to the first agreement except that it required Agarwal to pay 100 percent of the monetization proceeds, rather than 50 percent.
Buchanan argued that because 100 percent of the monetization proceeds were retained by Bayshore, Agarwal did not have an economic interest in the patents and therefore did not have standing to sue under the patents. The court rejected this argument, explaining that the provision did not diminish Agarwal’s rights to the patents for the purpose of standing. Infringement of the patents would still injure Agarwal’s “exclusive right to make and sell” patented products, regardless of damages. The court contrasted this situation with another case where the transferor retained a substantial amount of future proceeds in addition to substantial control as evidenced by maintaining the rights to make patented products, influence licensing and litigation, and limit sale or assignment of the patents. The court ultimately concluded that the agreements did not restrict Agarwal’s rights as an assignee, and therefore he had standing to sue for patent infringement. The court again concluded that this is merely “compensation for the transfer” that did not reserve control over the patents to Bayshore.
In conclusion, the court found that both agreements transferred the necessary rights to the patents to confer standing to sue.
Strategy and Conclusion
Paying all the proceeds of litigation or licensing to a transferor does not necessarily deprive the transferee of standing to sue. Courts consider the overall agreement between the parties to determine their intent to create an assignment, and particularly whether the agreement transferred the exclusive right to make, use, and sell patented products/services and the right to sue infringers.
The Agarwal decision can be found here.
This article is for informational purposes and does not constitute legal advice. The views expressed do not necessarily reflect the views of LES (U.S.A. and Canada) or Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.