How Exclusive Must an "Exclusive Licensee"

Be in Order to Sue for Patent Infringement?

 

By Kimberly Seluga, a member of our Litigation Practice Group

 

T

he Federal Circuit recently decided that in order to bring an infringement action an exclusive licensee need not have the right to exclude all others from practicing a patent.

Rather, as clarified in WiAV Solutions LLC v. Motorola, Inc., capacity to sue, or “standing,” depends on whether the exclusive licensee’s rights are at least exclusive as to the particular parties he wishes to sue for infringement. If so, that licensee can show legal injury from the infringement, a necessary condition for standing.

As it happens, an exclusive licensee may be able to sue some parties and not others.  The court’s decision provides more certainty for exclusive licensees and potential accused defendants as to who may sue whom, a question not always easily answered.

The standing of an exclusive licensee – whether he has demonstrated sufficient injury to be entitled to bring a suit for infringement – has long been the subject of Federal Circuit jurisprudence.  Despite its name, an “exclusive licensee” does not have to be the only party with exclusive rights to a particular patent.  A patent can have more than one exclusive licensee, with each licensee having exclusive rights to a portion of the patent rights.

For example, a party’s exclusive license may be limited to a particular field of use or geographic area.  Also, a party may be considered an exclusive licensee even if the patent was previously licensed to another party on a non-exclusive basis.

If an exclusive licensee holds all substantial rights in the patent, he has standing to sue an alleged infringer in his own name. Under this circumstance, the licensor has effectively assigned the patent to the licensee. 

An exclusive licensee with fewer than all substantial rights (such as an exclusive licensee in a limited field of use), however, must name the patentee as a co-plaintiff in the infringement action. Non-exclusive licensees lack standing altogether.

In WiAV Solutions, the Federal Circuit declared that an exclusive licensee need not have the right to exclude all others from practicing a patent in order to bring an infringement suit.  WiAV, the exclusive licensee in the wireless handset field for certain patents owned by Mindspeed Technologies, accused Motorola and several other defendants of infringing the licensed patents.

Because a number of third parties held limited rights to license the same patents in the same field of use, Motorola asked the trial judge to dismiss the lawsuit because WiAV was not an exclusive licensee and therefore lacked constitutional standing.  The district court agreed, finding that a party could not be an exclusive licensee of a patent if others have the right to grant sublicenses under the patent.  The Federal Circuit reversed.

The Federal Circuit disagreed that its precedents supported Motorola’s position, stating that it nowhere suggested “that a party holding one or more of the exclusionary rights in a patent does not have standing to sue to protect those rights against infringement by an unauthorized third party.  Nor is there any indication that the court created a bright-line rule that a party cannot be an exclusive licensee of a patent if others have the right to license the patent.”

Indeed, the court rejected the idea that a licensee must be the only party with the ability to license the patent in order to be an exclusive licensee.  Consistent with this rationale, the court held that WiAV had standing as an exclusive licensee because none of the third parties had the right to extend licenses to Motorola or the other defendants in WiAV’s field of exclusivity.  Simply put, for standing purposes, WiAV sufficiently showed that it was legally injured by Motorola.

That a licensee need only have exclusionary rights vis-à-vis a particular defendant allows exclusive licensees whose rights are not necessarily exclusive as to the rest of the world to more confidently bring infringement actions. Perhaps the licensee lacks standing to sue Company X, but it can pursue a claim against Company Y.

Presumably, if any of the other licensees in WiAV Solutions had the right to license to the defendants, the court would have reached the opposite conclusion.  Its decision made it clear that “an exclusive licensee lacks standing to sue a party who has the ability to obtain such a license from another party with the right to grant it.”

In this vein, an accused defendant could benefit from investigating whether it may obtain a license from another party in order to stop an exclusive licensee’s infringement action in its tracks. For their part, prospective licensees may wish to pay particular attention in negotiations to whether (and which) third parties hold the right to license a patent in the relevant field of exclusivity in order to accurately measure the bounds of their enforcement power.