by Dennis Crouch
The newest patent-focused petition for writ of certiorari to the Supreme Court was recently filed by Zebra Technologies, challenging the Federal Circuit’s determination that the a patentee had standing to sue for infringement even though a third party separately held rights to assign, license, and enforce patent rights.
The case offers an increasingly common situation in patent litigation finance where the litigation funder is seeking legal assurances and collateral rights, but where those rights potentially risk stripping the patent owner from the exclusionary rights necessary to establish standing.
Read the Petition: Zebra Technologies Corporation v. Intellectual Tech LLC
This is an area that continues to have significant uncertainty, and where the Federal Circuit’s current approach is in tension with old Supreme Court cases. The petition frames the question as follows:
Whether a party has Article III standing to assert a claim for patent infringement against an accused infringer who has the ability to obtain a license from a third party.
This question arises from somewhat unique circumstances of the case, where the patent at issue (US7233247) was subject to a security agreement that granted significant rights to a third party (Main Street Capital) upon the patent owner’s default. The patentee then did indeed default on payments that, by the terms of the contract, automatically granted significant rights to Main Street, including the independent right to license, assign, transfer, or otherwise dispose of it.
While a default existed, Main Street had the right to “sell, assign, transfer, . . . or otherwise dispose of the Patents,” including “enforc[ing] the Patents . . . and any licenses thereunder”
Petition, quoting the security agreement. Although Main Street had contract rights, it did not take any steps to enforce or use those rights. The question then becomes: Did the patentee retain sufficient exclusionary rights to have standing to sue for infringement?
The Supreme Court has long supported various limits on dividing patent ownership and enforcement rights, writing in 1892 a rule freely allowing divisions might allow “legal title to the patent might thus be distributed among a hundred persons at the same time” — something that would allow for duplicative litigation as well as “litigation among the assignees themselves as to the exact boundaries of their respective titles.” Pope Mfg. Co. v. Gormully & Jeffery Mfg. Co., 144 U.S. 248 (1892).
The Federal Circuit decision: In my previous analysis of the Federal Circuit’s decision, I noted that the court reversed the district court’s dismissal for lack of standing. The Federal Circuit emphasized the distinction between constitutional standing and the separate issue of whether a party qualifies as a “patentee” under 35 U.S.C. § 281 (“A patentee shall have remedy by civil action for infringement of his patent.”).
The appellate court characterized Main Street’s rights as an “unexercised option,” distinguishing it from outright ownership or control. It rejected the argument that Main Street’s ability to license the patent automatically stripped the patentee of its exclusionary rights. The court relied on precedents such as Aspex Eyewear, Inc. v. Miracle Optics, Inc., 434 F.3d 1336 (Fed. Cir. 2006), and Alfred E. Mann Found. for Sci. Rsch. v. Cochlear Corp., 604 F.3d 1354 (Fed. Cir. 2010), to conclude that a patent owner retains exclusionary rights even if it grants another party the ability to license the patent.
The Petition argues that despite the Federal Circuit’s assertion that “exclusionary rights” are the “touchstone” for Article III standing in patent cases, the court has failed to provide a clear definition of this term. This lack of clarity, the petitioner contends, leads to unpredictable outcomes and confusion for litigants and lower courts. Of course, the lack of clarity is longstanding — reaching back to the old case of Waterman v. Mackenzie, 138 U.S. 252 (1891), where the Supreme Court explained that “[w]hether a transfer of a particular right or interest under a patent is an assignment or a license does not depend upon the name by which it calls itself, but upon the legal effect of its provisions.”
The Federal Circuit’s decision in this case marks a significant departure from its previous stance in WiAV Solutions LLC v. Motorola, Inc., 631 F.3d 1257 (Fed. Cir. 2010). In WiAV, the court held that an exclusive licensee lacks standing to sue a party who can obtain a license from another entity with the right to grant it. This principle was based on the rationale that the plaintiff in such a case does not possess true “exclusionary rights” with respect to the alleged infringer. However, the Zebra distinguished the WiAV on a technicality. In particular, the Federal Circuit found that the WiAV alternative-license-avenue exception applied only to exclusive licensees seeking to enforce patent rights; the exception did not apply to Zebra since it was a patent owner (not a licensee). Although the licensee/patentee distinction exists, the challenger here argues that the distinction is not meaningful and effectively creates a double standard in the application of standing principles.
Patentee/Licensee and Standing. The explanation of this double standard goes back to Waterman and appears based upon the idea that a patent owner inherently possesses exclusionary rights “as a baseline matter” unless it has transferred all such rights away. On the other hand, a licensee typically does not have exclusionary rights except in the narrow circumstance of an exclusive licensee, and the existence of another who can sublicense rights effectively destroys the requisite exclusiveness.
In the end, I’m left wondering about this “Just So Story” — not about how the zebra got its stripes, but how patent owners lost theirs.
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Zebra Technologies is a publicly traded company that provides B2B mobile and tech solutions. The patent at issue, U.S. Patent No. 7,233,247, was previously owned by OnAsset Intelligence, Inc. before being assigned to Intellectual Tech LLC. The technology described in claim 1 centers on an enhanced Radio Frequency Identification (RFID) base unit, allowing it to communicate with multiple types of RFID circuits. For instance, it could potentially communicate with both low-frequency RFID tags (often used in access control) and high-frequency tags (common in payment systems) without requiring separate readers for each type. The patent also includes a control module that allows for multiple connection standards when connecting the base unit with a local or networked computer.