United States Court of Appeals for the Federal Circuit
2009-1447
ALFRED E. MANN FOUNDATION FOR SCIENTIFIC RESEARCH,
Plaintiff-Appellant,
v.
COCHLEAR CORPORATION and COCHLEAR LTD.,
Defendants-Appellees.
Brian G. Bodine, Lane Powell PC, of Seattle, Washington, argued for plaintiff-
appellant. With him on the brief were Peter Gergely, Merchant & Gould P.C. of Denver,
Colorado; and Malcolm J. Romano, Alfred E. Mann Foundation for Scientific Research,
of Santa Clarita, California.
Bruce G. Chapman, Connolly Bove Lodge & Hutz LLP, of Los Angeles,
California, argued for defendants-appellees. With him on the brief were Manuel C.
Nelson and Keith D. Fraser.
Appealed from: United States District Court for the Central District of California
Judge George H. King
United States Court of Appeals for the Federal Circuit
2009-1447
ALFRED E. MANN FOUNDATION FOR SCIENTIFIC RESEARCH,
Plaintiff-Appellant,
v.
COCHLEAR CORPORATION and COCHLEAR LTD.,
Defendants-Appellees.
Appeals from the United States District Court for the Central District of
California in case no. 07-CV-8108, Judge George H. King.
__________________________
DECIDED: May 14, 2010
__________________________
Before MICHEL, Chief Judge, NEWMAN, and DYK, Circuit Judges.
MICHEL, Chief Judge.
The Alfred E. Mann Foundation for Scientific Research (“AMF”) is a research
organization interested in developing new medical technologies, including cochlear
implants. Cochlear Corporation and Cochlear Ltd. (collectively, “Cochlear”) are
companies that build cochlear implants for use in human patients. AMF sued Cochlear
for patent infringement, and the district court dismissed the case for lack of standing to
sue. At issue is a 2004 agreement between AMF and Advanced Bionics (“AB”), another
company that builds cochlear implants, granting AB an exclusive license to the patents
that AMF later accused Cochlear of infringing. Cochlear contends, and the district court
held, that this agreement was a virtual assignment of the patents-in-suit to AB, giving
AB the sole right to sue for infringement of those patents. We find that AMF is the
owner of the patents-in-suit because it retained substantial rights in the patents,
including the right to sue for infringement if AB declines to do so. Accordingly, we
reverse the district court’s holding that AMF lacked standing to sue, and we remand for
proceedings consistent with this opinion.
I. BACKGROUND
In the mid-1980s, Alfred E. Mann, an inventor of medical devices, founded AMF
to develop new medical technologies. AMF conducts research aimed at developing
implantable medical devices that can improve health, safety, and quality of life. Among
these technologies are cochlear implants, devices that are placed in the inner ear to
allow profoundly deaf or severely hard-of-hearing patients to regain their ability to hear.
Cochlear implants are sometimes referred to as “bionic ears.” The patents-in-suit, U.S.
Patent No. 5,609,616 (“the ’616 patent”) and U.S. Patent No. 5,938,691 (“the ’691
patent”), disclose and claim cochlear implants and related technologies used to improve
hearing. These patents were issued to researchers at AMF, and those researchers
assigned the patents to AMF.
As a source of funding for its research work, AMF licenses its patents to for-profit
companies that build medical devices. Here, the ’616 patent and the ’691 patent were
licensed to AB under a license agreement entered into in 2004. The license agreement
granted AB the following rights:
• The exclusive, worldwide right to make, have made, use, lease, offer to lease,
sell, offer to sell, and otherwise commercially exploit the ’616 and ’691 patents for
the full term of those patents.
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• The first right to sue to enforce the patents when either AMF or AB learns of any
alleged, actual, suspected, potential, or threatened infringement,
misappropriation, or unauthorized use. This right to choose whether to sue
includes the right to control any litigation commenced by AB, including the right to
choose counsel and the right to make unilateral decisions about litigation and
settlement strategy and tactics.
• The right to settle any AB-controlled litigation on any terms (with or without
payment of money) without any prior authorization by AMF. Exercise of this right
does require first consulting with AMF.
• The right to grant sublicenses, 1 as long as the sublicenses include specified
confidentiality requirements; particular reporting, inspection, and audit rights;
provisions terminating the sublicense if the license is terminated; and the
payment of specified pass-through royalties to AMF.
In addition, AMF retained several rights and obligations under the license agreement:
• The secondary right to sue to enforce the patents when either AMF or AB finds
out about any alleged, actual, suspected, potential, or threatened infringement,
misappropriation, or unauthorized use and when AB declines to exercise its right
to sue, described above. This secondary right to sue includes the right to control
any litigation commenced by AMF, including the right to choose counsel and the
right to make unilateral decisions about litigation and settlement strategy and
tactics.
1
The parties dispute the breadth of the grant to AB of the right to sublicense.
Cochlear maintains that AB is allowed to grant sublicenses to anyone, while AMF insists
that AB is permitted only to sublicense AB’s affiliates.
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• The apparent obligation to pay maintenance fees on the patents-in-suit.
• The right to some significant portion of the recovery in infringement suits,
whether initiated by AB or by AMF.
• The apparent right to grant licenses to settle litigation initiated by AMF.
• The right to prevent AB from assigning its rights to anyone else except under
certain specified conditions. AMF’s consent to AB’s assignment of its rights
cannot be unreasonably withheld.
• The right to terminate the license agreement and any sublicenses if AB misses
payments to AMF.
In litigation commenced by either party, the other party to the agreement
maintained the right (but not the obligation) to participate in the litigation by hiring its
own counsel and by requiring the litigation-commencing party to keep it informed about
the status of the litigation, but the non-commencing party was not permitted to interfere
with the commencing party’s control of the litigation in any way.
After this license agreement was entered into, AMF notified AB of Cochlear’s
allegedly infringing activity and sought to determine AB’s decision regarding whether to
sue Cochlear for infringement of the ’616 patent. Having received assurance that AB
did not plan to sue over this alleged infringement, AMF filed suit in December 2007.
Eventually, the pleadings were amended to allege infringement of both the ’616 patent
and the ’691 patent.
During discovery in the district court, Cochlear learned of the 2004 license
agreement between AMF and AB. On March 3, 2009, Cochlear filed a motion to
dismiss AMF’s infringement claims for lack of standing to sue. On May 29, 2009, the
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district court granted the motion, finding that, because AMF had transferred to AB “all
substantial rights under the patents,” AB should be “considered the owner of those
patents.” On June 19, 2009, the district court entered judgment dismissing the case,
and AMF appealed to this court on June 23, 2009.
II. DISCUSSION
We review de novo the district court’s decisions regarding standing to sue. Rite-
Hite Corp. v. Kelley Co., 56 F.3d 1538, 1551 (Fed. Cir. 1995) (en banc). A patent owner
may transfer all substantial rights in the patents-in-suit, in which case the transfer is
tantamount to an assignment of those patents to the exclusive licensee, conferring
standing to sue solely on the licensee. Vaupel Textilmaschinen KG v. Meccanica Euro
Italia SpA, 944 F.2d 870, 873-74 (Fed. Cir. 1991). To determine whether an exclusive
license is tantamount to an assignment, we “must ascertain the intention of the parties
[to the license agreement] and examine the substance of what was granted.” Mentor
H/S, Inc. v. Medical Device Alliance, Inc., 240 F.3d 1016, 1017 (Fed. Cir. 2001). Here,
the license agreement is to be interpreted under California law, under which the district
court’s interpretation of a contract presents a question of law that we review de novo.
DVD Copy Control Ass’n v. Kaleidescape, Inc., 176 Cal. App. 4th 697, 713, 97 Cal.
Rptr. 3d 856, 869 (Cal. Ct. App. 6th Dist. 2009). To the extent that determining the
intention of the parties to the license agreement requires evaluation of parol evidence,
the district court’s evaluation presents a question of fact that we review deferentially. Id.
As noted above, a patent owner may grant an exclusive license to his patents
under such terms that the license is tantamount to an assignment of the patents to the
exclusive licensee. This happens when the exclusive license transfers “all substantial
2009-1447 5
rights” in the patents. Vaupel Textilmaschinen, 944 F.2d at 873-74. When this
happens, the exclusive licensee has sole standing to sue those suspected of infringing
the patents’ claims. Id. In addition, we have held that, where an exclusive license
transfers less than “all substantial rights” in the patents to the exclusive licensee, the
exclusive licensee may still be permitted to bring suit against infringers, but the patent
owner is an indispensable party who must be joined. Prima Tek II, L.L.C. v. A-Roo Co.,
222 F.3d 1372, 1377 (Fed. Cir. 2000). Typically, we are confronted with cases in which
an exclusive licensee sues an accused infringer, and we must decide whether the
licensee has been granted rights sufficient to confer standing. This case presents a
converse scenario in which the patent owner seeks to bring suit, requiring us to
determine whether the patent owner transferred away sufficient rights to divest it of any
right to sue.
We were faced with a similar set of facts in Aspex Eyewear, Inc. v. Miracle
Optics, Inc., 434 F.3d 1336 (Fed. Cir. 2006). There, the patent owner, Contour Optik,
Inc., had granted an exclusive license to Chic Optic, Inc., which was not a party to the
infringement litigation. Id. at 1338. In turn, Chic Optic assigned its rights to Aspex
Eyewear. Id. Shortly before the grant of rights from Chic Optic to Aspex Eyewear,
Contour Optik and Aspex Eyewear jointly sued Miracle Optics for infringement. Id. We
held that, because the grant from Contour Optik to Chic Optic was a grant of less than
all substantial rights, Contour remained the owner of the patents-in-suit and retained
standing to sue for infringement. Id. at 1343.
2009-1447 6
Under Aspex Eyewear, a patent may not have multiple separate owners for
purposes of determining standing to sue. 2 Either the licensor did not transfer “all
substantial rights” to the exclusive licensee, in which case the licensor remains the
owner of the patent and retains the right to sue for infringement, or the licensor did
transfer “all substantial rights” to the exclusive licensee, in which case the licensee
becomes the owner of the patent for standing purposes and gains the right to sue on its
own. In either case, the question is whether the license agreement transferred sufficient
rights to the exclusive licensee to make the licensee the owner of the patents in
question. If so, the licensee may sue but the licensor may not. If not, the licensor may
sue, but the licensee alone may not. When there is an exclusive license agreement, as
opposed to a nonexclusive license agreement, but the exclusive license does not
transfer enough rights to make the licensee the patent owner, either the licensee or the
licensor may sue, but both of them generally must be joined as parties to the litigation.
Aspex Eyewear, 434 F.3d at 1344 (citing Independent Wireless Tel. Co. v. Radio Corp.,
269 U.S. 459, 466 (1926)).
With these rules in mind, we can proceed to determine who was permitted to sue
suspected infringers under AMF’s license agreement with AB. The first step is to
determine whether the license is exclusive or nonexclusive, because AB, as the
licensee, would have no right to sue, even by joining AMF, under a nonexclusive license
agreement. Propat Int’l Corp. v. RPost, Inc., 473 F.3d 1187, 1193-94 (Fed. Cir. 2007).
2
Of course, the patent may be owned by a group, as when a patent with
multiple named inventors first issues. But, at least for purposes of determining standing
to sue for infringement, there may not be multiple groups or unaffiliated individuals who
claim ownership of the patent; one of these groups or individuals must be determined to
be the owner, and that owner is the only party with standing to sue on its own.
2009-1447 7
A finding that the license was exclusive is necessary, but not in itself sufficient, to find
that the licensee has standing to sue. Both parties to this appeal agree that the license
agreement between AMF and AB was exclusive, and they could hardly argue otherwise.
The agreement provides that “AMF hereby grants to AB an exclusive . . . worldwide
license . . . to make, use, lease, offer to lease, sell, offer to sell and otherwise
commercially exploit products and perform services” under the patents-in-suit. The
district court properly interpreted this language as a grant of an exclusive license.
Having found that AMF granted AB an exclusive license, we 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.
A patent “is, in effect, a bundle of rights which may be divided and assigned, or
retained in whole or part.” Vaupel Textilmaschinen, 944 F.2d at 875. Thus, although all
the various rights available under the patent are initially held by the named inventor or
inventors, they may, as a result of licensing agreements and assignments, become
separated and be held by multiple individuals. When a sufficiently large portion of this
bundle of rights is held by one individual, we refer to that individual as the owner of the
patent, and that individual is permitted to sue for infringement in his own name. When a
plaintiff lacking a sufficiently large portion of rights brings suit, that plaintiff does not
have standing to sue on his own, and the suit must be dismissed, or additional holders
2009-1447 8
of rights under the patent must be joined as parties to the suit, as appropriate given the
plaintiff’s status as either an exclusive or a nonexclusive licensee.
Our prior decisions have never purported to establish a complete list of the rights
whose holders must be examined to determine whether a licensor has transferred away
sufficient rights to render an exclusive licensee the owner of a patent. But we have
listed at least some of the rights that should be examined. Of course, transfer of the
exclusive right to make, use, and sell products or services under the patent is vitally
important to an assignment. Propat, 473 F.3d at 1193-94. We have also examined the
scope of the licensee’s right to sublicense, the nature of license provisions regarding the
reversion of rights to the licensor following breaches of the license agreement, the right
of the licensor to receive a portion of the recovery in infringement suits brought by the
licensee, the duration of the license rights granted to the licensee, the ability of the
licensor to supervise and control the licensee’s activities, the obligation of the licensor to
continue paying patent maintenance fees, and the nature of any limits on the licensee’s
right to assign its interests in the patent. See Intellectual Prop. Dev., Inc. v. TCI
Cablevision of Cal., Inc., 248 F.3d 1333, 1345 (Fed. Cir. 2001); Mentor H/S, 240 F.3d at
1018; Prima-Tek II, 222 F.3d at 1378-79; Vaupel Textilmaschinen, 944 F.2d at 875.
Frequently, though, the nature and scope of the exclusive licensee’s purported right to
bring suit, together with the nature and scope of any right to sue purportedly retained by
the licensor, is the most important consideration. See AsymmetRx, Inc. v. Biocare
Med., LLC, 582 F.3d 1314, 1320-21 (Fed. Cir. 2009); Sicom Sys. Ltd. v. Agilent Techs.,
Inc., 427 F.3d 971, 979-80 (Fed. Cir. 2005); Abbott Labs. v. Diamedix Corp., 47 F.3d
1128, 1132 (Fed. Cir. 1995). Where the licensor retains a right to sue accused
2009-1447 9
infringers, that right often precludes a finding that all substantial rights were transferred
to the licensee. It does not, however, preclude such a finding if the licensor’s right to
sue is rendered illusory by the licensee’s ability to settle licensor-initiated litigation by
granting royalty-free sublicenses to the accused infringers. Speedplay, Inc. v. Bebop,
Inc., 211 F.3d 1245, 1251 (Fed. Cir. 2000). 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, as noted above, 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. AB is required to keep AMF informed of the progress of the litigation, and
AMF is permitted to participate in the litigation using counsel of its choice, but AB has
the final say on all decisions relating to the litigation. This decision-making power
extends to the resolution of the litigation: AB must consult with AMF before settling a
lawsuit, but after this consultation, AB is permitted “to enter into any settlement or
judgment that involves any outcome . . . whether or not involving the payment of money
without the prior written approval of AMF.” The proceeds of the litigation, whether
obtained through settlement or judgment, are to be shared between AMF and AB
according to a formula that gives each party a substantial portion of the proceeds. If,
however, AB chooses not to file suit against an accused infringer, AMF has the right
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(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. As with
AB-initiated litigation, the proceeds of AMF-initiated litigation are to be shared between
the parties, with each party taking a substantial portion.
The parties disagree as to whether this scheme of litigation rights leaves AMF
with a right to sue substantial enough to find that AMF remains the owner of the
patents-in-suit. AMF argues that its rights under the license agreement are substantial,
allowing suit in at least some circumstances, including the circumstances of this case.
Cochlear correctly notes that AMF’s rights to sue are secondary to those of AB and
argues that this means AMF’s rights are insubstantial.
A complicating factor is the right of AB to grant sublicenses under the license
agreement. Cochlear argues that AB’s right to sublicense is essentially unfettered,
leaving open the possibility that, even though AMF could bring suit against an accused
infringer, AB could terminate that suit by granting an inexpensive or even cost-free
sublicense to the infringer. Cochlear further argues that this unfettered ability of AB to
frustrate AMF-initiated litigation by sublicensing accused infringers renders AMF’s right
to sue illusory. AMF argues to the contrary that AB’s sublicense rights are limited to
granting sublicenses to AB’s own affiliates and therefore do not include the right to
settle AMF-initiated litigation by granting sublicenses to other accused infringers.
Even if AB is permitted to sublicense defendants sued by AMF, the license
agreement specifies sublicense terms that would prevent such sublicenses from
2009-1447 11
rendering illusory AMF’s right to sue those defendants. By contrast, in Speedplay, we
held that a licensee’s right to grant royalty-free sublicenses to defendants sued by the
licensor rendered illusory the licensor’s right to sue. 211 F.3d at 1251. We expressly
distinguished an earlier case in which the licensor’s right to sue was not illusory
because any sublicenses the licensee might grant included the requirement to pay
royalties. Id. (citing Abbott Labs., 47 F.3d at 1132). Here, AB’s right to sublicense is
similarly fettered: any sublicense AB grants must include specified pass-through
royalties. Under Speedplay and Abbott Laboratories, AB’s right to sublicense does not
render illusory AMF’s right to sue accused infringers.
But if AMF’s right to sue suspected infringers is not illusory, is it still substantial
enough to find that AMF remains the owner of the patents-in-suit? We think it is. 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. In AsymmetRx,
we held retained litigation rights were sufficient to preserve the licensor’s ownership of
the patents-in-suit even when those rights failed to give the licensor complete control
over the litigation it initiated; instead, the licensor and licensee would have joint control
2009-1447 12
of the litigation. 582 F.3d at 1321. Here, AMF retained significantly greater litigation
rights, because it maintained absolute control over any suit it brought in its own name.
In Sicom Systems, we held that a licensor maintained ownership of the patents-in-suit
when that licensor retained the right to sue only noncommercial accused infringers,
having transferred to the licensee the sole and unconditional right to sue commercial
infringers. 427 F.3d at 978-79. Here, AMF retained greater litigation rights than the
licensor in Sicom Systems, because AMF had the right, following AB’s refusal to bring
suit, to sue any accused infringer, not just those falling into a particular class.
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.” Abbott Labs., 47 F.3d
at 1132. This prevented the licensee from “enjoy[ing] the right to indulge infringements,
which normally accompanies a complete conveyance of the right to sue.” Id. Similarly,
here, if AB declined to bring an infringement action against an infringer, AMF was
permitted to file suit.
We agree with AMF that it makes no difference that the license agreement fails
to specify a time within which AB must make its decision as to whether to sue. Under
California law, “[i]f no time is specified for the performance of an act required to be
performed, a reasonable time is allowed.” Cal. Civ. Code § 1657. Thus, AB has only a
reasonable amount of time before it must decide whether or not to sue an infringer,
2009-1447 13
depriving AB of the right to indulge infringements indefinitely. Because AB cannot
indulge infringements for an unlimited time, under Abbott Laboratories, AB holds
substantially less than the complete right to sue. 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.
As discussed above, the district court should have held that, although the
agreement between AMF and AB was an exclusive license agreement, it was not a
virtual assignment of the patents-in-suit. Accordingly, AMF retained standing to sue
accused infringers, and the district court therefore erred by dismissing AMF’s claims
against Cochlear for lack of standing. We therefore reverse the district court’s dismissal
of AMF’s claims and remand to the district court. On remand, the district court should
consider whether, under Aspex Eyewear, 434 F.3d at 1344, and Independent Wireless,
269 U.S. at 466, AB is an indispensable party to this litigation. If the district court finds
that AB is indispensable, then the district court should consider whether, under Rule 19
of the Federal Rules of Civil Procedure, AB or its successor must be joined as a party,
or whether dismissal of this case is warranted. We express no opinion as to the proper
disposal of this issue. If all standing issues are resolved favorably to AMF, the district
court should address the merits of AMF’s claims.
CONCLUSION
For the reasons stated above, we reverse the district court’s decision and
remand for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
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COSTS
No costs.
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