Texas Two-Step Cannot Avoid Licensee Liability

by Dennis Crouch

Plastronics Socket Partners v. Hwang (Fed. Cir. 2022) (non-precedential).

There is a lot going in this decision, but the crux of the appeal is a license interpretation question.  Here are the rough facts:

  • Hwang licensed its patent rights to Plastronics Socket.
  • Plastronics Socket split into two companies: Plastronics Socket and Plastronics H-Pin under Texas “divisive merger” statute.   (It is odd, but under Texas law, a division in this way is legally defined as a merger).
  • As part of that split, Plastronics H-Pin took on sole responsibility for the license. Plastronics H-Pin made the licensed products (h-pins) and sold them its sole customer Plastronics Socket at a very low rate — thus greatly reducing the royalties owed.
  • Plastronics Socket resold the product, but argued that it was no longer bound by the contract because the contract liabilities had been shifted to Plastronics H-Pin.

In the appeal, the Federal Circuit confirmed that the “divisive merger” cannot be used to escape from contract obligations.  Thus, Plastronics Socket still owes the 3% that it agreed to pay for its own sales.

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Statute of Limitations: Plastronics also had a counterclaim. In particular, Hwang had a right to further license the patent, but only with approval from Plastronics. Hwang admitted that he had licensed the patent, but that the license occurred 9 years before the lawsuit began and thus was outside of the 4-year statute of limitations under Texas law.  The Texas allowed the claim — since it was an ongoing license.  On appeal, however, the Federal Circuit reversed — holding that the “breach of contract … arose from a single, unauthorized license grant … almost ten years before Plaintiffs filed suit.”  As such, the case was beyond the statute of limitations.  The court distinguished other situations regarding periodic payments of royalties, where each missed payment is seen as another breach and thus can restart the statute of limitations. See Hooks v. Samson Lone Star, LP, 457 S.W.3d 52, 68 (Tex. 2015).

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These little H-pins are tiny, but have been important to the semiconductor industry:

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18 thoughts on “Texas Two-Step Cannot Avoid Licensee Liability

  1. 4

    OT (and behind a paywall – sorry folks), but it looks like some have picked up on my posts concerning the lack of the specific type of (chain of) authority for the Supreme Court decision in the Arthrex case:

    LAW360: Arthrex Wants Implant Patent Rematch With New USPTO Chief

    Arthrex has told a federal appeals court that it “never got the remedy the Supreme Court ordered” in its landmark patent battle against Smith & Nephew because the interim U.S. Patent and Trademark Office director lacks the authority to deny bids for director review.

    1. 4.1

      35 USC 3 (b) OFFICERS AND EMPLOYEES OF THE OFFICE.—
      (1) DEPUTY UNDER SECRETARY AND DEPUTY DIRECTOR.— The Secretary of Commerce, upon nomination by the Director, shall appoint a Deputy Under Secretary of Commerce for Intellectual Property and Deputy Director of the United States Patent and Trademark Office who shall be vested with the authority to act in the capacity of the Director in the event of the absence or incapacity of the Director. ..

      1. 4.1.1

        That statutory text does not really solve the Arthrex problem, unless that deputy serves at the pleasure of the president (which appears not to be the case).

        1. 4.1.1.1

          Greg, this is not the only relevant statute re those who can act for a federal agency head in the long delays for appointment of new agency heads with each new president. Also not to be confused is the difference between who a President can get fired with who a President has to appoint and get Senate advice and consent to hire? [The latter was the losing argument [re APJs] in the Arthrex decision.]

          1. 4.1.1.1.1

            As I have previously pointed out, Paul, the Office was just too coy in regards to those “long delays,” and the not even taking the title of Acting gambit BADLY backfires for the reasoning used by the Supreme Court.

            Plainly put: Hirshfeld does not have the proper authority. No one (currently) in the Patent Office does. Vidal will when she gets there, but every case (at point under Arthrex until then is fraught with legal error.

      2. 4.1.2

        No Paul – not good enough.

        As I have pointed out, the Patent Office decided to play a game (in view of timing requirements under other laws), and not even name Hirshfeld as “Acting.”

        Bottom line is that there is no valid chain of authority to Hirshfeld that holds to the actual holding of the Arthrex case.

        Note as well that his formal role of Commissioner is NOT in your citation.

  2. 3

    Fun fact: Plastronics’ founder was the late Wayne K. Pfaff. Name ring a bell?

  3. 2

    The district court’s contract and statute of limitations interpretations are legal issues that get reviewed de novo on appeal [as here even though the Fed. Cir. had to decide issues of Texas statutes interpretations based on Texas cases].
    Validity was not in issue in this decision, presumably because that was not in the best overall financial interests of either the licensee or licensor? But infringement was initially asserted, hence EDTX and Fed. Cir. jurisdiction.

  4. 1

    A spring? The patents clearly involve Hooke’s law and should be invalidated under 35 USC 101. See American Axle.

    1. 1.1

      It would be an interesting challenge to rewrite the claims to be so poorly drafted that they get the American Axle treatment.

      1. 1.1.1

        So your assertion is that “poorly drafted claims” would completely explain any non-use of “American Axle treatment?”

        That would be an interesting assertion, given that the case does not provide the patent number (nor claim), and you likely have not seen how the actual claim has been drafted.

        In other words, you pulled this out of your arse, and it — of course – comes out in an anti-patent manner.

        The only thing “ordinary” here is that your post provides its ordinary level of critical thinking (that is to say, none).

        1. 1.1.1.1

          You are correct: I should not have assumed the claims are already not poorly drafted enough to get the American Axle treatment.

          1. 1.1.1.1.1

            Touché, but the Patent No. is US 7,025,602, which they have wisely [per the AIA marking statute amendment] “marked” on their website for this Plastronics H-Pin product. It seems to have claims that reasonably specifically structurally define the invention rather than just the spring loaded continuous electrical contact end result. [Albeit not claiming the automated stamped-parts-assembly [no machining?] advantage stressed their video?]

            1. 1.1.1.1.1.1

              Thanks Paul (the method of manufacture is also stressed in the case decision)

      2. 1.1.2

        It would be an interesting challenge to rewrite the claims to be so poorly drafted that they get the American Axle treatment.
        I would like to know what about the American Axle claims got them to be directed to “Hooke’s law.” Do you know? Or are you just speculating?

      3. 1.1.3

        How about:

        A method for manufacturing a contact for electronic devices comprising:
        providing a spring;
        configuring a body within the spring to transmit electrical signal with fewer components than a pogo pin.

        1. 1.1.3.1

          Ben 1.1.3 [and O.S. 1.1]: “with fewer components than a pogo pin” might exceed even the latest Fed. Cir. stretch-decision for spec-silent negative claim limitation support. How about: “and to prevent two different vibration modes of the spring”?

          1. 1.1.3.1.1

            … because this blog is a “teaching blog”….

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