How not to divide patent rights during bankruptcy

Morrow v. Microsoft (Fed. Cir. 2007)

In bankruptcy, AHC’s title to its patent transferred to a liquidating trust, AHLT. A second trust, GUCLT, was given the right to several causes of action, including patent infringement litigation (generally called Estate Litigation).  GUCLT was not granted a license to make or use the patent.

Through its trustee, GUCLT sued Microsoft for infringing Patent No. 6,122,647 – a patent relating to dynamic generation of hypertext links. Microsoft was awarded summary judgment on the merits. On appeal, GUCLT had trouble even getting a hearing.

Standing: To have standing, a party must show injury:

  • The patent title holder has standing to sue because infringement injures the patent holder’s right to exclude.
  • An exclusive licensee usually has standing to sue because the infringement injures the licensee’s ‘exclusivity.’ When the exclusive licensee sues, the patent title holder must be joined as a co-plaintiff.
  • A non-exclusive licensee usually does not have standing because they have no right to stop others from making or using the invention.
  • A non-licensee also has no standing to sue.

GUCLT holds the contractual right to sue, but is not a licensee. Ergo, GUCLT does not have standing.  (Under the bankruptcy plan, AHLT likewise has no right to bring litigation…)

Rule of Practice: A non-title-holder must be granted an exclusive license as well as full litigation rights in order to have standing to sue for patent infringement.

5 thoughts on “How not to divide patent rights during bankruptcy

  1. to Sereboff:

    I wholly agree. It never ceases to amaze me how the “patent law is very specialized; therefore patent attorneys don’t know anything else but patents” ideology makes its way into the corporate decision making process. I can count numerous times where having the counsel of a patent attorney with a seemingly non-patent matter would have made all the difference.

    Until that point comes, we have to read about a bunch of bankruptcy attorneys who don’t know anything about licensing.

    not everyone can be a patent attorney, but patent attorneys can practice in any area. And the good ones often do.

  2. Sounds like the bankruptcy attorneys decided to play in my sand box. I guess they got sand into their pretty toys and now they’re broken. The real lesson here is that patent counsel needs to be included in these deals. Now that their toys are broken, who gets the blame?

  3. This wasn’t the smartest way to break up the rights (in addition to the Court’s ruling, it is tough to settle a lawsuit if you don’t have the licensing right).

    That said, this was not a no-brainer. The Fed. Cir. could easily have said that the exclusive right to exclude was transferred to GUCLT and thus it had standing. How do you get there? GUCLT had to consent to any licensing by AHLT. By having this right, GUCLT could wield 100% exclusive power over the right to exclude by simply saying “AHLT – GUCLT will not consent to any license, exclusive or otherwise, of this patent. GUCLT has the sole right to enforce the right to exclude, and is doing so by infringement litigation.”

    Seems to me that this is sufficient for standing, and the court glosses over the consent simply by saying that consent doesn’t confer the exclusionary right. This may be true, but where the exclusive right to enforce has been granted, a veto power then consolidates the exclusive right to exclude because GUCLT can keep anyone else from granting a license.

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