by Dennis Crouch
In the civil procedure focused Keranos v. Silicon Storage (Fed. Cir. 2015), the Federal Circuit has ruled that a trial court must consider good cause when determining whether to allow parties to amend their infringement contentions. The is a likely precursor to future disputes if Congress enacts patent reform measures that require traditional infringement contention elements be asserted in the original complaint.
Here, Keranos sued several dozen defendants in E.D. Texas for infringing its transistor programming patents. See U.S. Patent Nos. 4,795,719, 4,868,629, and 5,042,009.
In its original infringement contentions (filed prior to discovery as required by local rules), Keranos identified a number of allegedly infringing products and product families. After uncovering further information regarding infringing products, the patentee filed a motion to amend its infringement contentions to particularly identify the offending product numbers. However, the district court denied that motion – noting that the local rules required identification of products by number, not family, and that the patentee had not acted diligently in using the public domain to identify the product numbers. As a result, the trial court limited the case only to the accused products particularly identified in the original infringement contentions.
On appeal, the Federal Circuit has vacated the district court ruling and remanded with instructions to consider on a defendant-by-defendant basis whether product number information was publicly available when the infringement contentions were filed. For those that were not publicly available based upon a diligent search, the court should allow amended infringement contentions. However, those product numbers that could have been identified (and identified as infringing) will seemingly remain off the list.
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The Keranos decision also includes an interesting discussion of standing. Keranos (a Nicholas Gross company) obtained the patents from the United Module Corporation (UMC) just before filing suit in what was termed an “Exclusive Patent License and Royalty Agreement.” UMC, however, was not joined as a plaintiff in the cases.
The rule for patent cases is that all parties holding substantial ownership rights of a patent must be joined as plaintiffs in any action asserting that patent. However, title-holder may create an exclusive licenses that is so extensive as to be considered an assignment of all substantial patent rights. In that case, the licensee is “‘deemed the effective ‘patentee’ under 35 U.S.C. § 281’ with effective title to the patent, and alone has ‘standing to maintain an infringement suit in its own name.’ Quoting Prima Tek II v. A-Roo Co., 222 F.3d 1372 (Fed. Cir. 2000).
Here, the patents had expired and UMC transferred the “exclusive past, present, and future rights to sue and recover for infringement, to make, use, import, and sell products covered by the patents, and to negotiate and grant sublicenses” and did not retain any right to sue infringers. Since the patent was expired, the question of whether UMC retained a right to use the invention was moot. As such, the Federal Circuit affimed that the licensee had proper standing.
This reminded me that a licensing manager had told me last year about a surprising interest in buying their expired patents.
Undoubtedly they are buying these expired patents so cheaply that they can offer relatively cheap settlements to defendants which almost all defendants will pay rather than pay to fight legally. [The perfect troll business model.] But I wondered what other advantages the purchasers might think they are getting?
For some refreshing perspective, the middle patent in this trio was granted in September of 1989 and expired in 2006.
That’s 9 years ago.
That expiration date is four years before the patent was licensed to Keranos, four years before this lawsuit was filed, one year after Judge Patel memorialized for all time the modus operandi of the plaintiff in this case (see Phoenix Solutions Inc. v. Wells Fargo Bank, N.A.), nine years before the same plaintiff’s latest patenting attemps were tanked by the CAFC in neat Rule 36 affirmances of the Board’s invalidity findings, and eight years before the plaintiff’s behavior in Media Queue v. Netflix (junk claims chucked on summary judgment) led indirectly to fee-shifting reforms and two Supreme Court decisions (Octane Fitness and Highmark) intended to curb patent abuse.
It’s like some sort of loopy money-grubbing machine was set loose on the world. Watch it grub! Because that’s what it does. Hopefully it stays off your lawn.
PM Interestingly, if IPRs have been filed, and these patents are expired, so that claims cannot be amended or added, then BRI claim scope would not apply.
Because the broadest reasonable interpretation is not detectably different from the reasonable interpretation (unless, of course, it’s your claims that are being soooooo unfairly tanked in an IPR) it wouldn’t seem to make any difference one way or the other.
Query whether or how the facts in this case — a serial NPE buying an expired patent and using it to threaten 50 defendants with the typical lack of diligence before filing the lawsuit — should be considered when determining obviousness in a “close case.”
Why should ANY “who” come into consideration when determining something that has no bearing on that “who?”
Do you even bother trying to cope with the law anymore?
Some echosystem…
Why should ANY “who” come into consideration when determining something that has no bearing on that “who?”
I’m talking about considering facts surrounding the monetization efforts of the patent. Those facts necessarily include prior conduct by the patentee as that prior conduct affects those monetization efforts.
Please go ahead and disagree as vociferously as you wish but make an effort to provide your reasoning. For instance, if monetization efforts by the patentee are irrelevant to validity, then come right out and say so instead of mewling under a rock.
“surrounding the monetization”
That clearly does not matter given that the property right that is patents was DESIGNED to be freely and fully alienable.
The reasoning was provided by the (history) award winning research on the U.S. patent system.
But then again, you already knew this (because I have already told you – several times).
There is NO “mewling under a rock” from me.
You on the other hand….
Well, let’s be pleasant and just say that you are being your typical arse self.
“anon”: [facts surrounding the monetization] clearly [do] not matter
Anyone else agree with this? It’d be a shame to waste this remedial teaching moment on “anon” alone since he’s pretty much incapable of learning anyway.
Tell me more of this Quid Pro Quo that you apparently think you know so well.
Let me know whose ideas are in accord with the (historical) award winning research.
On this too, I will not be holding my breath.
(and please, we are talking substantive rights here – not the mere lower rates for the maintenance fees)
J. Nicholas Gross, the alleged “president, principal shareholder, and/or sole
employee of Keranos,”
Everybody’s favorite one-trick pony. This can only be great news for Keranos!
LOLOLOLOLOL
I think the Federal Circuit got the standing issue wrong, most likely because they were relying on case law that was developed to handle issues of prudential standing, rather than constitutional standing. (I’ll have to track down the briefs to see how the defendants framed the issue.)
Someone who takes a “license” or even “legal title” under an expired patent doesn’t have Article III standing because they were not and cannot possibly be injured by the defendant.
In the earlier cases regarding patent assignments, none of which involved patents that had expired as of the date of assignment, there was no question of constitutional standing – an exclusive licensee is injured by infringement, even if it was in the past, as that infringement goes to the heart of the present right to exclude.
This, by the way, is the answer to the false dilemma that the court raises here, regarding whether it should make any difference whether the assignment is executed the day before or the day after the patent expires. If the assignment is signed the day before, the assignee gets a right to exclude. If the day after, the assignee doesn’t. From an Article III perspective, that’s a big difference – even if the injury doesn’t last very long, there’s still a difference between some injury and none.
Another argument that leads to the same conclusion is that the statute (35 USC 281) that creates the cause of action expressly grants it to the patentee. Elsewhere (35 USC 100), the statute says that the “patentee” can also be the successor in title. But, it seems clear that 35 USC 281 is creating a right of action that is personal. This is not a part of the patent, but a right that accrues to the patentee, by virtue of his ownership of the patent. By statute, this personal right survives the extinguishing of all rights in the patent. But the patent itself does not. Hence, an agreement that purports to assign all substantial rights in an expired patent is a nullity, with respect to the patent. All you have is a naked assignment of a right to sue. But, without an actual or effective transfer of actual title in a patent, the assignee is not a patentee, and is not covered by 35 USC 281.
My paper on this topic is forthcoming, as soon as I get around to writing it.
That’s a really interesting point.
Can we argue here that the “patent” holder (in quotes since it has expired) is engaging in a form of champerty? Is this type of activity void as against public policy (in addition to the statutory reasons you mention) — if the patentee didn’t think it was in his interest to enforce rights while the patent was in force, should we allow the naked right to sue to another party and is there any other field of law where this sort of naked right to sue is allowed?
In addition, as you note, what are the assignee’s damages? How has it been hurt? Can you “buy” an Article III injury?
Thanks Jane. Does not buying an expired patent requires also specifically contractually acquiring the right to sue for past infringements of the patent in order to have any standing to bring suit for them? [Otherwise is not that right [or chose in action] be retained by the prior patent owner?] So is that just contractually buying a lawsuit?
But since this is Texas, who cares – as I recall they don’t have a champerty defense.
But, per my other point below, which I think is more important, a patent purchaser inherits the laches of the prior patent owners.
Yes, I believe you’re correct that laches runs with the patent — but the Fed Cir may do away with that in SCA (but then again, may not).
I’m trying to think of any analogous situation where a party is allowed to buy the right to sue off someone else, where the underlying right no longer exists, and still have Article III standing.
For example, suppose Bob owns some land, and Mark puts up a tent on it. Bob does nothing for 3 years (I’m purposefully avoiding adverse possession). Bob then sells the land to third-party Susie (this is akin to the patent now expiring — the right to exclude from the land is now gone to someone else).
Can Bob now give another person, Glen, the right to sue Mark for putting the tent up for those 3 years (assuming the statute of limitation has not run). Does Glen have any constitutionally recognizable injury? Perhaps Glen paid consideration for that right to sue — does that give injury?
Can Bob now give another person, Glen, the right to sue Mark for putting the tent up for those 3 years (assuming the statute of limitation has not run). Does Glen have any constitutionally recognizable injury? Perhaps Glen paid consideration for that right to sue — does that give injury?
Not one caused by Mark. Either that “right” has value or it doesn’t, as a matter of law. Either way, nothing Mark has done does any damage to whatever it is that Glen has obtained.
Is this type of activity void as against public policy (in addition to the statutory reasons you mention) — if the patentee didn’t think it was in his interest to enforce rights while the patent was in force, should we allow the naked right to sue to another party and is there any other field of law where this sort of naked right to sue is allowed?
Early 20th century Supreme Court case law on this point was extremely negative regarding the transfer of a naked right to sue, in the patent context. It’s been a while since I did the research on this, so I don’t remember the cites, but there are a couple of cases that discuss it. The Federal Circuit opinion here doesn’t mention them, but I bet they were raised in the defendant’s briefs. Ned seems to have all the early cases memorized – perhaps he can identify one for us.
“Keranos sued several dozen defendants in E.D. Texas for infringing its transistor programming patents. See U.S. Patent Nos. 4,795,719, 4,868,629, and 5,042,009.”
Aren’t those very old patents? Strange Comment No. 3 below even seems to be suggesting that they may be expired? If so, isn’t there likely to be a potentially fully dispositive laches issue in these cases, since only limited term back-damages recoveries would be possible?
Interestingly, if IPRs have been filed, and these patents are expired, so that claims cannot be amended or added, then BRI claim scope would not apply.
DanH, causes of action for past damages are assignable in law.
Are you suggesting that that did not happen here?
Wait, what I said appears to be a matter of statute overturning the common law. In Kailfornia, the common law rule was overturned.
Goodley v. W&W, Inc., 62 Cal. App. 3d 389, 393, 133 Cal. Rptr. 83 (Ct. App. 1976).
In 1872 our Legislature effected a change in the common law rule of nonassignability of choses in action by enacting sections 953[4] and 954,[5] Civil Code. Thus a thing in action arising out of either the violation of a right of property or an obligation or contract may be transferred (Morris v. Standard Oil Co., 200 Cal. 210, 214 [252 P. 605]; Stapp v. Madera Canal & Irr. Co., 34 Cal. App. 41, 46 [166 P. 823]).
I was involved in at least one case where the title to a patent was assigned from bankruptcy to a successor, but where the chose in action for a particular infringement was retained by the estate and sued upon. In that case, the title holder stayed out by specifically agreeing to be bound by the outcome of the case.
Interesting.
This may address whether the claims are assignable, but does that give Article III standing? I don’t think these two things are necessarily co-extensive. (I vaguely recall my Federal Courts professor saying state courts are intended to be more accessible to litigants than Federal Courts in terms of standing, but I may be mistaken)
The Supreme Court may have something to say about this in Spokeo, depending on how they rule on it.
Jane, are you suggesting that state law does not apply to patent choses-in-action? Preemption?
If state law applies, or even foreign law, it will depend on which state law applies. In some states, a chose in action may not be assignable.
This does argue for national treatment so that the common law rule of inalienability should apply. Cook, Walter Wheeler. “The Alienability of Choses in Action.” Harvard Law Review (1916): 816-837. link to jstor.org
Note: under English law according to the article, the assignee of a chose-in-action apparently only received equitable rights, not legal rights. Equitable rights should not be enough for standing. But, remarkably, the Federal Circuit seems not to know the difference between the two. See, the concurring opinions in BD. OF TRUST. OF LELAND STANFORD v. ROCHE SYS., 131 S. Ct. 2188, 180 L. Ed. 2d 1, 563 U.S. (2011). link to scholar.google.com
Ned,
I think we’re discussing different things. What I’m referring to is whether there’s injury-in-fact. It is possible that there is no injury for Article III standing purposes but at the same time, the injury can be recognized in state courts.
But perhaps I misunderstand you?
Thanks for the research.
Where would patent law be without patent trolls constantly diving to the bottom of the barrel and scraping it in the hopes that some judge or defendant will buy their relentless b.s.?
Best part: when the same trolls complain about how nobody likes them and we’re all “jealous.”
Keep the laughs coming, JNG.
I like your argument. These are the facts according to the court:
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Keranos, which was formed as a Texas corporation on February 10, 2010, obtained the rights to the asserted patents from United Module Corporation (UMC) on February 16, 2010, through an “Exclusive Patent License and Royalty Agreement.” UMC continued to hold the legal title to the asserted patents, all of which expired prior to the filing of the current action; the ’719 and ’629 patents expired in 2006, and the ’009 patent expired in 2008. Keranos did not join UMC as co-plaintiff in this action.
—-
So, Keranos got a license to patents that had already expired at the time of the license. I always had the impression that licenses were transfers of a “bundle of rights”. If you didn’t have the right, you couldn’t transfer it. Did UMC continue to hold the right to sue on expired patents and is it possible to transfer that right to a licensee? The court seems to think so. You have a good argument, too, though.
The SC has already ruled, it seems:
I just checked, Sprint Communications, controlling law here, was not citied by the Federal Circuit.
I don’t think that that was the answer that DanH wanted…
Well this seems pretty on point — thanks Ned
The whining from the patentees here about their inability to comply with the local rules is priceless. “There’s just too many infringing products out there for us to list them all!” Boo hoo hoo. Presumably the miniscule cost associated with identifying all ten thousand infringing products will be recouped and then some after the inevitable victory.
Or maybe this case isn’t about winning anything in the traditional sense of the word.
Thanks for the write-up Dennis!
I was gratified that 4 federal judges agreed that my formulation of the transfer of rights passed muster under any test. It was a unique case in that the patents had already expired as you noted. For the infringement contentions I am pleased that we will get another shot at this as there are several defendants who now do not have grounds for objection based on the Court’s ruling. So we live to fight another day.
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