Patent Ownership and Standing: Legal Title vs Effective Title

by Dennis Crouch

Azure Networks and Tri-County Excelsior v. CSR, et. al (Fed. Cir. 2014)

The court here holds that the legal owner of the patent has no standing to be a co-plaintiff with the exclusive licensee. When all substantial rights in the patent are transferred to an exclusive licensee that entity becomes the effective owner and the license is an effective assignment. In my mind, the decision here is an incorrect results-oriented decision in reaction to the plaintiffs’ too-clever pre-filing actions. 

The ownership and control history of U.S. Patent No. 7,756,129 is fairly interesting, if also obscuer.  The “personal area networking” patent was originally owned by the innovative company BBN, but by 2009 Azure Networks was the owner.  Missing from the USPTO records is the chain-of-title from BBN to Azue. In its opinion here, the court alluded to the chain by mentioning that the patent has “passed through many hands of ownership.”  From context, I believe that the chain of title was discussed in the Federal Circuit briefs, but those portions are confidential and non-public.

In an odd move, Azure transferred ownership of the patent (as a gift) to a non-profit organization – the Tri-County Excelsior Foundation which is a sub-org of the E.D.Texas Court Appointed Special Advocates (CASA) group. As part of the transfer, Azure retained (or was transferred-back) an exclusive license of “all substantial rights” that include “the exclusive, worldwide, transferable right to bring enforcement actions, unfettered control over litigation, and exclusive authority to reach settlements and grant sub-licenses” further, under the agreement the charity “may participate in litigation only at Azure’s sole discretion.” In return for grantin the back-license, the charity receives 1/3 of proceeds on the patent.

The court here suggests that the motivation for the donation was largely to ensure that the case venue would remain in the Eastern District of Texas.

In this lawsuit, Azure and Tri-County jointly filed the complaint and the question on appeal is whether Tri-County – as the patent owner – has standing as a co-plaintiff. In its decision, the Federal Circuit ruled no – the owner has no standing to join the lawsuit because it had transferred substantially all rights to the exclusive licensee.

As the district court recognized, nothing about this relationship structure indicates that Tri-County has control over any aspect of litigation involving the ’129 patent. Rather, it is clear that Azure is holding all the strings. In sum, Azure’s exclusive right to sue, exclusive license, and freedom to sublicense are factors that strongly suggest that the Agreement constitutes an effective assignment.

There are several problems with this conclusion.  First, legal title remains with the charity and the tradition is that a party with legal title can be joined as a plaintiff with an exclusive licensee who has the right to enforce.  Second, the charity here retains a major and direct interest in the outcome of the case (33%) that creates a genuine conflict in fact. Third, the agreement also gives the charity the right to cancel the license at will (during an annual window) or for breach (anytime). And fourth, the implicit good faith elements of the contract provide additional rights to the legal title holder.

Need Not vs Shall Not: The usual rule is that all owners of a patent must be joined-together in a lawsuit asserting the patent.  In a number of prior cases, the Federal Circuit has held that a title-owner need not be joined if the plaintiff/exclusive-licensee holds all substantial rights in the patent.  See Morrow v. Microsoft, 499 F.3d 1332 (Fed. Cir. 2007).  Here, the court turns takes that approach substantially further by holding that the title-holder shall not be joined in this situation.

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Recording License Agreements: License agreements are not normally recorded with the USPTO. What this means is that someone who purchases a patent (or receives the patent as a security interest) without notice of the license will still be bound by the license.  However, when a license is (as here) an “effective assignment,” the implicit suggestion is that it must be recorded to fully secure rights against future bonafide purchasers and creditors.

16 thoughts on “Patent Ownership and Standing: Legal Title vs Effective Title

  1. 6

    Consider this situation in the case of IPR’s. Who should the petition be made against, the record owner or the exclusive licensee?

      1. 6.1.1

        OK, anon, the consider the legal owner has not recorded his assignment. An IPR is filed, but the legal owner is never notified. No one responds.

        Can the PTO constitutionally order trial, and then potentially cancel all claims?



          I am uncertain of the point you are trying to make.

          I am guessing that you think it a bit “unfair” that a true owner may not be notified of an IPR action because the Office does not have that current unregistered owner’s contact information.

          So what?

          The updating of information is not – not ever was intended to be – a mandatory scheme. The opportunity to let the government know has always been there for ANY new owner – and that opportunity is still there.

          You seem to want to make some emotional “it’s not fair” ploy, when that ploy fails to evoke that sympathy given that the new owners have all opportunity to avoid the “pitfall” you present.

          I am not compelled by your argument. Do you have any other one to present?

  2. 5

    Dennis, the only right one has with a patent is the right to exclude. When that is assigned, the legal title is assigned. They are the same thing.

    Now if instead the licensee is granted for a limited term the exclusive right to exclude, what is this but an assignment with a recessionary interest?

    The portion of the case I have disagreement with is the exclusion of the “owner” of the revisionary interest.

    1. 5.1

      What about past damages, the right to pursue past damages, who will collect past damaged prior to assignment/license?

      What about right to sublicense? In theory I could grant exclusive license to you on the right to exclude and still not give you a right to sublicensee. So in that case you could have the enforcement rights – but no right to sub-license.

      I can understand why a plaintiff would want all potential rights holders in a complaint – just in an abundance of caution to assure standing on the ‘patent owner’ requirement. This of course is judge made law effecting the policy of a single owner entity as a plaintiff – which understandably simplifies issues like the power to court extending to fully cover the party.

      I don’t understand the point of this decision ? So a party was dismissed as an un-necessary plaintiff? What is an un-necessary plaintiff? They joined in filing the complaint, that makes them a plaintiff. Clearly they have some interest in the patent – at least a reversionary interest – or a claim to revenue based on the license.

      1. 5.1.1

        Iwasthere, good point about past damages. The case did not discuss that.

        I think the whole point here is that where there is no case or controversy, there is no constitutional standing whatsoever. Because the only party that had a right to sue and collect damages was the exclusive licensee and not the nominal owner, the nominal titleholder had no constitutional standing. They had to be dismissed.

        But what happens if the defendant raises the issue of invalidity either as an affirmative defense or as a counterclaim? Does the nominal titleholder and reversionary interest holder then have standing? I think he does.

        So what’s the court to do then? Allow the nominal titleholder and reversionary interest holder to intervene to defend his title?


          Good points. Q: I wonder who the PTO would deem to be the ‘patent owner’ for defense of an AIA action? I assume the assignee – owner and not the exclusive licensee – as PTO would be loath to wade into a license agreement to determine – substantially all the rights – standing issues.


            iwasthere, the PTO is Art I. Art III standing is not an issue. Thus, the titleholder has, I would think, the exclusive right to conduct the defense and must be the party named.

            This is why this case is problematical. The title holder can get back into the case as soon as validity is raised.



          Contrast this with our past discussions on how a pirate lacks that same constitutional standing for a (now still valid) patent…

  3. 4

    Compare/Contrast with Righthaven in Copyrights…
    Transferring substantially all rights does not transfer the right to sue for infringement.
    I think there was an extra transfer-back in that case though, which the court similarly saw through.

  4. 3

    Makes sense, and I think follows past precedent. If substantially all rights are transferred, it is in effect an assignment by another name.

    Mike — I don’t think that happens. If the patent owner assigns a way some rights, but not substantially all, it is still the party with standing to sue (even though mathematically “all rights – some rights != substantially all rights”).

  5. 2

    Shouldn’t drawing formal distinctions between legal and equitable title to patents gradually become something of an anachronism in most cases in view of the now long past mergers of law and equity jurisdictions?

    1. 2.1

      Paul, equitable title is not title.

      Consider the employment agreement obligating one to assign (presently assign?) future invention to company.

      Can or should the company be able to file that with the PTO without more, and by that I mean that the inventor signs no further assignments of individual inventions to company. What if the inventor makes an invention on his own time. Can the company file on it and claim ownership?

      Come on, now. There is a good reason why equitable title and legal title are two different things.

      But, on this topic, the Federal Circuit law is very confused.

  6. 1

    Well. I guess if no single party has “all substantial rights” the no party or combination of parties can bring a suit. The court forgets there is a different between constitutional standing and procedural standing.

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