Patent transfer considerations: Takeaways from Lone Star Silicon Innovations LLC v. Nanya Tech. Corp.
In a recent decision, the United States Court of Appeals for the Federal Circuit further clarified the "all substantial rights" doctrine related to patent infringement and assignment. The court held that Lone Star Silicon Innovations LLC's (Lone Star) patent transfer agreement with Advanced Micro Devices (AMD) did not result in the transfer of "all substantial rights" necessary to bring a patent infringement case under 35 U.S.C. § 281. See Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., Nos. 2018-1581, 2018-1582, 2019 U.S. App. LEXIS 16077, *1,*18 (Fed. Cir. May 30, 2019). Further, the court vacated and remanded the case for the district court to consider whether AMD, as the patentee, should be joined as a party under Federal Rule of Civil Procedure (FRCP) 19. Id. at *30-*31. This decision illustrates that patent transfer agreements must in "totality" transfer "all substantial rights" to a party before that party can sue for patent infringement under 35 U.S.C. § 281. See id. at *18. Also, this decision notes that depending on how a transfer agreement is structured, the original patentee potentially risks joinder to patent enforcement litigation it did not foresee. See id. at *30-*31.
Under 35 U.S.C. § 281, only "patentee[s]" can bring a civil action for patent infringement. The term patentee includes the original patentee (whether the inventor or original assignee) and "successors in title," but not licensees. See U.S.C. § 100(d). To determine whether a transfer agreement conferred an assignment or a license, a court will analyze whether the agreement's substance, rather than its formalities, in "totality" transferred "all substantial rights." See Lone Star, U.S. App. LEXIS 16077 at *6-*7. In determining whether an agreement's substance transferred "all substantial rights," the Federal Circuit typically focuses on two rights: enforcement and alienability. See id. at *11.
First, the disputed transfer agreement contained a broad conveyance of "all right, title and interest" in the covered patents to Lone Star from AMD. See id. at *8. However, the remainder of the agreement contained numerous provisions that "substantially curtail[ed]" Lone Star's rights of alienability and enforcement with respect to the asserted patents. See id. at *8-*9. The Federal Circuit focused on these three issues in the patent transfer agreement:
- Enforceability: AMD must consent before Lone Star can file suit against parties not listed in the transfer agreement. See id. at *12-*13. Further, AMD retains the right to grant a sublicense to any unlisted entity, thereby negating a lawsuit filed by Lone Star. See id.
- Alienability: Lone Star cannot transfer the patents to a buyer unless that buyer agrees to be bound by the same restrictions as Lone Star; otherwise, AMD can withhold consent and stop the sale. Id. at *15-*16.
- Monetization: The transfer agreement secures a share of Lone Star's "monetization efforts" for AMD, wherein AMD and its affiliates can make, use and sell products practicing the patents. See id. at *16-*17.
When analyzing the "totality" of the agreement, the court held that all the facts "suggest that AMD did not transfer all substantial rights in its patents to Lone Star." See id. at *17. As a result, the Court held that Lone Star was a licensee and not an assignee, and therefore lacked the ability to assert a patent enforcement claim under 35 U.S.C. § 281. See id. at *18.
Second, the Federal Circuit determined that the district court failed to consider whether AMD should be joined per Rule 19 of the Federal Rules of Civil Procedure and, therefore, erred in dismissing the case. See id. at *24. While Lone Star did not have standing to assert a patent enforcement claim under 35 U.S.C. § 281, the Court held that because Lone Star retained some exclusionary rights and it possibly suffered an injury from the plaintiff, Lone Star had Article III standing. See id. at *18-*24. The Federal Circuit invoked Supreme Court precedent, which mandates courts to join patentees along with licensees who otherwise have standing, and held that the district court should have applied FRCP 19 analysis to consider whether AMD could have been or needed to be joined to the litigation. See id. at *24-*28 (citing Indep. Wireless Tel. Co. v. Radio Corp. of Am., 269 U.S. 459, 473 (1926)).
The Federal Circuit's holding provides clarification regarding patent transfer agreements. When drafting a patent transfer agreement, practitioners can use and accept broad language. However, they must be careful when using broad language in conjunction with giving rights to an assignor. While the transfer agreement in Lone Star broadly conveyed "all right, title, and interest" to the asserted patents, the transfer agreement's conveyance of assignor rights restricting the alienability and enforcement of the asserted patents caused the court to rule that the transfer agreement was merely a licensing agreement. Going forward, in order to properly assign a patent, practitioners must ensure that the substance of their transfer agreements do not contain provisions that severely restrict the alienability and enforceability of the assignee's rights to the patent.
As in Lone Star, if a transfer agreement contains such restrictive assignor provisions, a court may in "totality" view the agreement as a license rather than an assignment. Additionally, for those who own a patent and wish to assign the patent to another party, the transfer agreement must be drafted carefully when imposing ongoing restrictions to the patent. Otherwise, similar to AMD in Lone Star, a presumptive assignor may find itself on the verge of being a joined party in unexpected litigation.
Mandeep Raj (White & Case, Summer Associate, Silicon Valley) contributed to the development of this publication.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2019 White & Case LLP