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Federal Circuit Holds that ITC’s Trademark Decisions Are Not Binding on District Courts, Creating a Potential Circuit Split

The U.S. International Trade Commission, a quasi-judicial independent agency based in Washington, D.C., is a common forum for patent, trademark, and trade secret disputes. The Federal Circuit has long held that the ITC’s rulings on patent infringement and validity issues do not have preclusive effect on later district court proceedings.

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(CAFC Summary) Alfred E. Mann Found. for Scientific Research v. Cochlear Corp. - Licensor's Standing to Sue for Patent Infringement


Time to Read: 4 minutes Practices: Intellectual Property

Alfred E. Mann Found. for Scientific Research v. Cochlear Corp., ___ F.Supp.2d ___, No. 2009-1447 (Fed. Cir. May 14, 2010): (Licensor’s standing to sue for patent infringement) – [Where the licensor retains an unfettered right in the patent license to sue for patent infringement after the exclusive licensee chooses not to sue and the exclusive licensee declines to sue, the licensor has standing to sue to enforce the patent.]

Issues:  (1) Exclusivity of license.  (2) Licensor’s standing to sue for patent infringement. (3) Whether right to grant sublicenses vitiates licensor’s standing to sue for patent infringement.

Briefer’s Comment:  Cochlear Corp. also argued that Advanced Bionics’ (“AB”) right to grant sublicenses to accused infringers rendered the Alfred E. Mann Foundation’s (“AMF”) right to bring suits illusory.  Without commentary, the court rejected this argument on the basis that the license required AB to include specific pass-through royalties on any sublicense it granted. 

Technology:  Cochlear implants for use in human patients.

Summary:  The Federal Circuit (Michel, Newman, and Dyk) reversed the Central District of California’s (King) holding that AMF lacked standing to sue Cochlear Corp. for patent infringement.  AMF granted a license to AB to the patents at issue, which granted AB, among other rights, an exclusive right to exploit the patents and the first right to sue to enforce the patents, including the right to make unilateral decisions about any enforcement litigation.  If AB declined to exercise the right to sue, however, AMF retained the right to sue to enforce the patents with the same freedom to make unilateral decisions regarding the course of litigation.  Several years after executing the license agreement, AMF notified AB that Cochlear Corp. was infringing the licensed patents.  AMF sued Cochlear Corp. for infringement when AB declined to sue.

    The Federal Circuit stated:

    [W]e next need to determine the scope of that license grant in order to decide which party to the agreement was the owner of the patents-in-suit. If AMF remained the owner, then it had standing to sue for infringement. If AMF transferred sufficient rights to AB to render AB the owner, then AMF was not permitted to sue for infringement, and the district court properly dismissed the case for lack of standing.

    Under the prior decisions of this court, the nature and scope of the licensor’s retained right to sue accused infringers is the most important factor in determining whether an exclusive license transfers sufficient rights to render the licensee the owner of the patent. [¶] Here . . . the license agreement provides as follows regarding infringement litigation. Both AMF and AB are required to notify the other party upon learning of a possible infringement of the patents. After this notification, AB has the absolute right to decide whether or not to initiate litigation against the accused infringer. If AB chooses to exercise this right by filing suit, it maintains complete control over the litigation. . . . If, however, AB chooses not to file suit against an accused infringer, AMF has the right (but not the obligation) to initiate litigation. If AMF chooses to exercise this right, it controls the litigation in much the same way that AB controls litigation it initiates. Thus, while AB is permitted to join in the litigation, AMF has the final say regarding all decisions, including decisions about whether and how to settle the litigation.

    AMF’s right to sue suspected infringers is . . . substantial enough to find that AMF remains the owner of the patents-in-suit[.] . . . While AMF’s right to choose to sue an infringer does not vest until AB chooses not to sue that infringer, it is otherwise unfettered. Once its right to sue an infringer activates, AMF can decide whether or not to bring suit, when to bring suit, where to bring suit, what claims to assert, what damages to seek, whether to seek injunctive relief, whether to settle the litigation, and the terms on which the litigation will be settled. AMF is required to inform AB of the status of the litigation while it is ongoing, but AMF has complete discretion to decide what trial strategy and tactics to employ.

    Such a broad right to decide whether to bring suit and to control litigation is thoroughly inconsistent with an assignment of the patents-in-suit to AB. . . . [¶] AMF’s retained right to sue suspected infringers here is most similar to the licensor’s litigation rights at issue in Abbott Laboratories, where we found the retained rights sufficient to preclude the exclusive license agreement from being deemed a virtual assignment of the patents-in-suit. There, the exclusive licensee had the “right of first refusal in suing alleged infringers,” but if the licensee “decline[d] to so do, [the licensor] ha[d] the right to prosecute its own infringement action.” This prevented the licensee from “enjoy[ing] the right to indulge infringements, which normally accompanies a complete conveyance of the right to sue.” Similarly, here, if AB declined to bring an infringement action against an infringer, AMF was permitted to file suit. [¶] . . . Thus, AMF’s retained right to sue is significant, and so we hold that the license agreement was not a virtual assignment of the patents-in-suit to AB.

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