By Jason Rantanen
STC.UMN v. Intel Corp. (Fed. Cir. 2014)
Original panel: Rader (author), Dyk, Newman (dissenting)
Denial of rehearing en banc: Dyk, concurring (joined by Moore and Taranto); Newman, dissenting (joined by Lourie, O’Malley, and Wallach); O’Malley, dissenting (joined by Newman, Lourie and Wallach)
The issue at the core of this appeal was whether a co-owner of a patent can be forced to join an infringement lawsuit brought by another co-owner or instead effectively block the suit by refusing to participate. The Federal Circuit is deeply split on this issue, as evidenced by both the June 2-1 panel opinion and the 6-4 refusal to rehear the decision en banc. The panel majority held that a co-owner may not be forced to join the infringement suit and because the full court denied rehearing en banc, that holding stands unless the Court grants cert. Judge Newman and Judge O’Malley both wrote dissenting opinions.
The patent right and co-owners. Co-owners of a patent may separately exercise all the rights of a patent owner: they may make, use, offer for sale, and import the patented invention without needing the permission of the other co-owner. They may also grant a license to the patent. Importantly, they may do all of this without giving the other co-owner a dime; unlike for copyrighted works, there is no right of accounting for patents.
A consequence of this is that if there are co-owners of a patent, a prospective infringer need only obtain a license from one co-owner. This makes unity of patent rights important for any party who wishes to actually enforce those rights as against future conduct.
This rule is clear as to future conduct; the complexity comes about when dealing with past infringing activities. A patent co-owner may only grant a prospective license to the patent and a release as to its own claims for liability for past infringing conduct; it may not release infringers from liability to the other co-owner for past infringement. However, it is also blackletter law that all owners of a patent must be parties to an infringement suit for there to be standing. But not all co-owners may cooperate with the party wanting to bring the suit. Perhaps they have some contractual obligation to the accused infringer; perhaps they are even directly connected to the accused infringer. Or perhaps, as in this case, the co-owner just wants to remain “neutral.” Does the uncooperative co-owner have the right to do so?
This case can be seen as an old fight renewed. The origins of the split go back to the Federal Circuit’s 1998 decision in Ethicon v. United States Surgical, 135 F.3d 1456. The majority opinion, written by Judge Rader, dismissed the suit on the ground that a co-owner could not and did not consent to the infringement. This conclusion followed the following statement of law:
Further, as a matter of substantive patent law, all co-owners must ordinarily consent to join as plaintiffs in an infringement suit.9 Consequently, “one co-owner has the right to impede the other co-owner’s ability to sue infringers by refusing to voluntarily join in such a suit.” Schering, 104 F.3d at 345.
Footnote 9 referred to two exceptions: where the co-owner has waived its right to refuse to join the suit and where there is an exclusive licensee, the exclusive licensee may sue in the owner’s name.
Judge Newman dissented in Ethicon. While much of her dissent focused on the issue of whether an inventor on only some of the claims is a co-owner of the patent as a whole (Judge Newman would have held no), she also pointed out that Rule 19’s involuntary joinder rule should apply here.
Involuntary Joinder Does Not Apply: Drawing heavily upon Ethicon, the panel opinion in this case – also written by Judge Rader -extended the rule that co-owners of a patent may refuse to voluntarily join an infringement suit to preclude operation of Federal Rule of Civil Procedure 19(a). The relevant portion of that rule states:
(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person’s absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the person’s ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
(2) Joinder by Court Order. If a person has not been joined as required, the court must order that the person be made a party. A person who refuses to join as a plaintiff may be made either a defendant or, in a proper case, an involuntary plaintiff.
A few things to note: First, no one appears to be disputing that Rule 19 has the force of law or that a co-owner may refuse to voluntarily participate in a patent infringement suit. Rather, the disagreement boils down to (1) whether the co-owner has a “substantive right” not to participate in a patent infringement suit and (2) if there is such a right, whether it preclude the application of Rule 19.
Unfortunately, as Judge O’Malley’s dissent points out with particular rigor, the panel majority opinion is is quite short on the basis for this “substantive right.” The basic legal move the majority makes is to rely on precedent holding that a co-owner may refuse to voluntarily participate in a patent suit as providing the basis for a substantive right not to join an infringement suit, with the policy basis that the anti-involuntary joinder rule ” protects, inter alia, a co-owner’s right not to be thrust into costly litigation where its patent is subject to potential invalidation.”
Concurring in the denial of en banc review, Judge Dyk’s opinion fleshes out the argument in more detail. In Judge Dyk’s articulation, the question is whether there is a “substantive obligation” for the co-owner of a patent to join the suit; in the absence of a “substantive obligation,” the co-owner cannot be forced to join through the operation of procedural rules, such as Rule 19. Judge Dyk thus flips the question: while he points to cases where the co-owner did not consent, and thus the suit was dismissed, he also points out the lack of patent cases imposing a “substantive obligation on a patent co-owner to consent to the assertion of an infringement claim.” This allocation of substantive rights cannot be changed by application of Rule 19.
Writing in dissent to the denial of rehearing en banc, Judge O’Malley challenged both the basis for the substantive right as well as way such a “right” interacts with Rule 19. Walking through Ethicon and the other cases cited by Judges Rader and Dyk, Judge O’Malley challenges the precedential basis for such a “right.” Nor, Judge O’Malley argues, is there any basis in statute for this “right;” indeed, it is directly contradicted by other statutory “rights,” particularly Section 154(a)(1), “the right to exclude others.” And in any event, Rule 19 is *mandatory.* “By its terms, therefore, when a person satisfies the requirements of Rule 19(a), joinder of that person is required.”
So what’s going to happen? As Hal Wegner has noted in his email newsletter, a petition for certiorari is expected in this case. And, given that the core issue is one of civil procedure, albeit intertwined with an issue of the nature of the patent right, it may be particularly appealing for the Court – especially coupled with the deep split and thoughtful opinions of two of the Federal Circuit’s sharpest thinkers.
An odd issue raised by the majority rule here: What happens when one co-owner sends out threatening letters to an accused infringer but the other does not. Can the accused infringer bring a declaratory judgment action against both co-owners? If not, must the declaratory judgment action be dismissed for lack of standing? Or is this sufficiently different from an affirmative suit for infringement as to make the “all parties required” rule not apply?
Ethicon references not just Waterman, but also Moore v. Marsh, for the “settled principle” that all patent owners must be joined in a patent infringement action.
Per Waterman, a patentee may assign, grant or convey “(2) an undivided part or share of that exclusive right,” and such a transfer vests title in the patent itself “with a right to sue infringers . . . jointly with the assignor”
The quoted section from Moore reads, “where the assignment is of an undivided part of the patent, the action should be brought for every infringement committed subsequent to the assignment, in the joint names of the patentee and assignee, as representing the entire interest.”
The two cases seem to stand for the prospect that a patent owner may assign ownership in an undivided portion of the patent, but if so, any subsequent infringement action must join both owners. Ethicon merely applied this same principle to scenarios where the joint ownership derives from joint inventorship.
Per Ethicon and 35 USC 262, a co-owner may license a patent without the consent or an accounting to other co-owners. This protects a licensee from prospective infringement suits. A license cannot protect the licensee from other co-owners seeking recovery of past infringement. However, a licensee can be protected from suits for past infringement if any of the co-owners refuses to join the suit.
This may seem strange but it actually promotes innovation. Co-owners are allowed to license without consent or accounting to encourage licensing by preventing freeloading co-owners. From the other perspective, independent licenses would be discouraged if, even after paying, a licensee still faces the threat of past infringement damages.
Zac, 35 USC 262 says nothing about a co-owner licensing anything. It provides only a right to use. A right to use does not bear with it a right to license.
A co-owner may sell his interest. The buyer gains a use license going forward by statute. This is consistent with Moore.
A joint owner of any other kind of property cannot act with regard to the property without the consent of his co-owners. The requirement of jointly filing suit is consistent. The right to license without consent is very much inconsistent with this basic principle.
Waterman required that joint owners jointly file suit. Waterman cited the Paper-Bag Cases, 105 US 766 – Supreme Court 1882. There the Supreme Court openly suggested that the joint owners may only jointly license:
“While there is no testimony in the case showing any instrument in writing by which the other patentees united in a license for the use of this machine, we are entirely satisfied that they gave their assent to what was done by Charles H. Morgan, and are in no condition to claim adversely to the license which he undertook to grant.”
Notably, the authority that a joint owner may license without the consent or accounting to his co-owners is without statutory support, or support in Supreme Court case law. In fact, both Waterman and Paper Bag Cases are inconsistent.
Given the above, I think the idea that a joint owner may license without consent of his co-owners is bad law — not supported in the statutes, inconsistent with them in fact, and inconsistent with controlling Supreme Court case authority.
I fail to understand why you have made several logical leap:.
1. Why does the lack of the word “license” prevent a joint owner from licensing any or all of the listed rights under Section 262. Section 154 uses the same list of rights granted to a patentee and the right to license those rights to others is inherently understood.
* Additionally, I fail to see how you can conflate a sale of a co-owner’s undivided interest with a license to “use.” An assignment brings with it all rights that the grantor had to convey, that is, an undivided interest in the right to use, make, sell, or offer to sell.
2. Why must a non-exclusive license be jointly agreed upon under property laws? From my knowledge of property law, each joint tenant owns an undivided share of the property rights and has the right lease that interest to a third party. The lessee cannot demand exclusive possession but only co-possession. If there is precedent that suggest a joint-tenant or tenant-in-common cannot lease their undivided interest to a third party please reference it. My brief research indicates the exact opposite.
3. How does stating that no evidence exists of an agreement by co-owners to license indicate that an agreement is necessary? In the Paper-Bag Cases the Court merely says no agreement is in evidence and if anyone wanted to complain the Court feels comfortable telling them that they have already acquiesced to the license. That is not the same as saying that an agreement is necessary and they have met the burden of showing its existence.
4. Why does the current landscape equal “bad law” in light of the pro-innovation policy rationales behind it? Under your reading, which requires you to exclude licenses from Section 262, the current law may or may not conflict with Supreme Court dicta from over a century ago. Not only has the landscape of patented technology changed (chemistry and computers) but so has the market, with far more joint inventors and owners than before.
The Supreme Court held in Waterman v. Mackenzie that all owners must join a lawsuit lest an infringer be subject to suit by the non-joined owners.
This implies that the grant of a license by one owner will not relieve the infringer of liability to the other joint owners.
It further implies that to have full immunity from suit, all owners must jointly license.
35 USC 262 says nothing about third party infringement and licenses.
Therefore, to me, it is abundantly clear that the theory that a joint owner may license a third party without the consent of the other joint owners is inconsistent with controlling Supreme Court authority.
I can only hope the Supreme Court takes this case, because the problem of wildcard joint owners has vexed patent law for too long. That line of cases has to be trashed.
Actually, read O’Malley’s discussion of Waterman for a better explanation.
Independent Wireless was of the view that a non-joined owner, given notice, might be bound by a judgment under res judicata.
But the bottom line is that the theory that all co-owners must be joined stems from the idea that to not do so would expose the infringer to multiple lawsuits — and the satisfaction of one would not satisfy the other.
This implies that a license granted by one, again, cannot relieve the liability of the infringer to the other. This double’s down on the requirement that all owners be joined to protect the infringer.
There is something very strange about the thinking of the majority.
“This implies that a license granted by one, again, cannot relieve the liability of the infringer to the other.”
Hi Ned. Apologies as I have not yet read the case and probably won’t get to it until the weekend, but I have a quick question for you. Isn’t there a difference between licensure and what happens going forward, vs. damages that accrued in the past?
I think it’s clear that OwnerA cannot absolve the infringer of past damages it owes to OwnerB.
However, once infringer is indeed duly licensed under the patent, although the past damages to OwnerB may still exist, isn’t it the case that the licensee, duly licensed under the patent, is no longer damaging OwnerB (i.e., now licensed, he is no longer infringing)?
Mellow, perhaps. But the whole theory that one owner can grant a license to the whole patent is inconsistent with controlling Supreme Court case law.
It is also to be observed that the original cases finding a right to license by a co-owner were decided well prior to Waterman v. MacKenzie, and to the extent they are inconsistent, are thereby overruled.
It is further to be observed that the grant of a right to use does not grant a right to license. §262 only grants a right to use.
It is abundantly clear that there is no right of a joint owner to license the patent without the consent and authority of his co-owner. The lower court precedents to the contrary were overruled by subsequent Supreme Court authority and are not good law.
The older cases are summarized at 548 in Talbot v. Quaker State Oil Refining Co., 28 F. Supp. 544 (W.D. Pa. 1938).
None are Supreme Court cases, but I have not read them to see whether they cite to any Supreme Court cases.
“the whole theory that one owner can grant a license to the whole patent is inconsistent”
On this point, Talbot seems (clearly, quote below) to say the opposite of what you’ve been saying. Waterman doesn’t seem to get you where you want to go, either.
Either you are not connecting the dots well enough for me to follow your thinking (given I’m braindead today anyway), or the case law doesn’t say what you think it does.
Here’s a comment from the holding in Talbot:
A tenant in common of a patent right may exercise his right thereunder to any extent he pleases without the consent of his co-tenant. He may make use of and sell specimens of the patented invention and may license others to do so; and neither he nor his licensees can be enjoined from a continuance in so doing.
(emphases all Mellow)
This is the problem with Talbot and its authority — that I have yet to thoroughly trace. By statute, joint inventors own a patent in joint tenancy — not as tenants in common. The statute reads,
According the law of joint tenancies, there is only one estate in a patent, and joint owners do not have a right to encumber or sell the estate unilaterally.
I would be surprised, mightily surprised, to find contrary Supreme Court authority. The distinctions between the type of ownership were recently discussed here: United States v. Craft, 535 U.S. 274, 122 S. Ct. 1414, 152 L. Ed. 2d 437 (2002).
I think the Supreme Court is going to have another field day with the Federal Circuit who simply does not seem to understand the general law. They have criticized the Federal Circuit for not understand the law of infringement. They have criticize the Federal Circuit for not understanding the law of equitable assignment.
This is will be just another example where the Federal Circuit will receive a sound whupping.
My reply awaits moderation.
Re “The Supreme Court held in Waterman v. Mackenzie that all owners must join a lawsuit lest an infringer be subject to suit by the non-joined owners.”
That does not appear to be the holding in Waterman. In fact it appears that SCOTUS didn’t consider this as there was found to be only a single owner (Shipman) in the Waterman case.
From Waterman:
“The necessary conclusion appears to us to be that Shipman, being the present owner of the whole title in the patent under a mortgage duly executed and recorded, was the person, and the only person, entitled to maintain such a bill as this, and that the plea therefore was rightly adjudged good.
In the light of our legislation and decisions, no weight can be given to the case of Van Gelder v. Society, 44 Ch.D. 374, in which, upon pleadings and facts similar to those now before us, the mortgagor of a patent was treated as a mortgagor in possession and was allowed to maintain a suit for infringement, under the provisions of the English Judicature Act of 1873 and Patent Act of 1883. Stats. 36 & 37 Vict. c. 66, § 25; 46 & 47 Vict. c. 57, §§ 23, 46, 87.
Whether, in a suit brought by the mortgagee, the court at the suggestion of the mortgagor or of the mortgagee or of the defendants might, in its discretion and for the purpose of preventing multiplicity of suits or miscarriage of justice, permit or order the mortgagor to be joined either as a plaintiff or as a defendant need not be considered, because no such question is presented by this record.”
Abstraction, see the beginning of the case where the court clearly declares that the ownership of a patent cannot be divided. A tenant in common, however, should be able to sue to recover for his “share.” But that is not the law as defined in Waterman. Patent suits only be brought jointly by all owners.
In Curtis on the law patents, pages 171-2, Curtis quotes extensively from Pitts v. Hall, 3 Blatch. 201 (1854).
“It is well settled that a destruction or sale of the joint property by one of the part owners authorizes his co-proprietor to maintain trover for the conversion.”
…
“One joint owner can legally grant, assign, license, or sell only in respect to his own share or right. He cannot sell and give a good title to his co-owner’s right, for the same reason that one joint owner of a
chattel cannot transfer the share of his co-proprietor. And if he appropriates any portion of the exclusive right or common property to his separate use or benefit … he does what is in principle the same as the conversion, by destruction or sale of the joint property
by a tenant in common, which authorizes his co-tenant to maintain trover.”
Do you mean the part where they are discussing Rev. Stat. §§ 4884 and 4898, and say that ownership “cannot be divided into parts, except as authorized by those laws.” ?
Please see 35 USC §§ 261-262.
In particular, the language in 261 (“any interest therein”) suggests that ownership can be divided into parts now.
Abstraction, good points these. But it appears that even if one can sell a share of a patent, the tenancy must remain joint, otherwise a tenant in common should be able to sue for his share of the infringement without joining his co-owners. This the Supreme Court held was not possible — under the statutes.
Note, once again, that joint inventors seem to take the patent as joint tenants by statute because the cannot sue separately.
Waterman cited with approval the Paper-Bag Cases, 105 US 766 – Supreme Court 1882 link to scholar.google.com At 767, the court noted
Obviously, this consistent with requirement that all joint owners participate in both licensing and in infringement. Cases to the contrary by the lower courts are in doubt.
This quote from Waterman cinches it — a patent can only be owned jointly, not as tenants in common:
“Every patent issued under the laws of the United States for an invention or discovery contains “a grant to the patentee, his heirs and assigns, for the term of seventeen years, of the exclusive right to make, use and vend the invention or discovery throughout the United States and the Territories thereof.” Rev. Stat. § 4884. The monopoly thus granted is one entire thing, and cannot be divided into parts, except as authorized by those laws. The patentee or his assigns may, by instrument in writing, assign, grant and convey, either, 1st, the whole patent, comprising the exclusive right to make, use and vend the invention throughout the United States; or, 2d, an undivided part or share of that exclusive right; or, 3d, the exclusive right under the patent within and throughout a specified part of the United States. Rev. Stat. § 4898.”
Conveyancing that treats patents as commonly held may have a problem.
Looks to me like Waterman stands for the unremarkable proposition that, once you assign away all your rights in a patent, you cannot thereafter assign those rights a second time, because you don’t have them any more.
Nor, ?
You may think that Supreme Court dicta can be ignored …
By any chance, are you now or have your ever worked on or for the Federal Circuit?
No. But then again if I had worked on or for the Federal Circuit in the last ten years, I would be tempted to lie about it.
Paul – the panel slip opinion discusses this at p. 9-10.
Jason, do you have a cite for: “A patent co-owner may only grant a prospective license to the patent and a release as to its own claims for liability for past infringing conduct; it may not release infringers from liability to the other co-owner for past infringement.” ?
[This seems inconsistent with co-owners being able to independently do whatever they want with a patent, including competiting with each other in offering the cheapest license to anyone, i.e. all the other reasons why joint ownership is legally stupid but insisted on by some university patent administrators. See, e.g., “Joint Ownership of Inventions, Patents or Copyrights – A Legal mess to Avoid” December 1997 AUTM Newsletter [The Association of University Technology Managers.]
Past damages.
Think!
We continue to odd, nay, very odd decisions out of the Federal Circuit. Why?
Blackstone says that unity of estate must be maintained as between joint tenants in order to avoid problems like this. Thanks, Third Circuit.
Nor, ditto the Supreme Court in Waterman v. MacKenzie.
Also, it is hornbook law that joint tenants cannot sell or give away their share without the consent of the other.
It seems to me that Waterman v. Mackenzie clearly stood for the proposition that there can only be one estate in a patent, though jointly owned. Actions and licenses can only be taken jointly.
Ned,
You attempt FAR too much with the Waterman case, and thus wreck your credibility for the position you are attempting to advocate.
Anyone can read the case itself at link to supreme.jusits.com
There is NO reasonable way to have the takeaway (let alone the case’s HOLDING) be what you claim it to be.
As my friends in Boston would tell you: You cannot get there from here.
Link: link to supreme.justia.com
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