United States Court of Appeals
for the Federal Circuit
__________________________
A123 SYSTEMS, INC.,
Plaintiff-Appellant,
v.
HYDRO-QUEBEC,
Defendant-Appellee.
__________________________
2010-1059
__________________________
Appeal from the United States District Court for the
District of Massachusetts in Case No. 06-CV-10612, Judge
Joseph L. Tauro.
____________________________
Decided: November 10, 2010
____________________________
WAYNE L. STONER, Wilmer Cutler Pickering Hale and
Dorr LLP, of Boston, Massachusetts, argued for plaintiff-
appellant. With him on the brief were CHRISTOPHER R.
NOYES and CHRISTOPHER M. STRAW.
DARRYL J. ADAMS, Baker Botts LLP, of Austin, Texas,
argued for defendant-appellee. With him on the brief
were KEVIN J. MEEK and JAMES W. CANNON, JR.
__________________________
A123 SYSTEMS v. HYDRO-QUEBEC 2
Before LOURIE, BRYSON, and DYK, Circuit Judges.
LOURIE, Circuit Judge.
A123 Systems, Inc. (“A123”) appeals from the final de-
cision of the United States District Court for the District
of Massachusetts denying A123’s motion to reopen and
dismissing its declaratory judgment action against Hydro-
Quebec (“HQ”). A123 Sys., Inc. v. Hydro-Quebec, 657 F.
Supp. 2d 276 (D. Mass. 2009). We affirm.
BACKGROUND
A123 filed suit in the District of Massachusetts on
April 7, 2006, seeking a declaration of noninfringement
and invalidity with respect to two patents, U.S. Patents
5,910,382 (“the ’382 patent”) and 6,514,640 (“the ’640
patent”) (collectively, “the patents in suit”), assigned to
the Board of Regents, The University of Texas System
(“UT”) and licensed to HQ. Both patents are entitled,
“Cathode Materials for Secondary (Rechargeable) Lithium
Batteries,” and both claim a genus of lithium-based
cathode materials. Claim 1 of the ’640 patent, the broad-
est representative claim, reads as follows:
3 A123 SYSTEMS v. HYDRO-QUEBEC
On August 14, 2006, HQ moved to dismiss A123’s de-
claratory judgment suit. HQ argued, inter alia, that UT
was a necessary and indispensable party because, pursu-
ant to UT and HQ’s Patent License Agreement, UT had
transferred to HQ less than all substantial rights in the
patents in suit, granting HQ only an exclusive field-of-use
license. HQ further alleged that UT could not be joined as
a defendant based on its entitlement to Eleventh
Amendment sovereign immunity. A month later, on
September 11, 2006, HQ and UT jointly initiated an
infringement suit against A123, among others, in the
Northern District of Texas.
After A123 successfully requested a reexamination of
both patents, the Texas action was stayed and the Massa-
A123 SYSTEMS v. HYDRO-QUEBEC 4
chusetts court dismissed A123’s declaratory judgment
action without prejudice to either party to reopen within
thirty days following the termination of the reexamina-
tions. A123 filed a timely motion to reopen the case on
June 11, 2008. HQ opposed the motion, arguing that
reopening the case would be futile based on the argu-
ments made in its earlier motion to dismiss.
On September 28, 2008, the district court denied
A123’s motion to reopen, yielding jurisdiction over A123’s
declaratory judgment suit to the later-filed suit in Texas
in light of its conclusion that A123’s first-filed action, if
reopened, would be subject to imminent dismissal for
failure to join a necessary party. A123 Sys., 657 F. Supp.
2d at 279-80. Specifically, the district court held that, by
granting HQ only a field-of-use license, UT had trans-
ferred less than all substantial rights in the patents in
suit to HQ, making UT a necessary party to A123’s suit
under this court’s prudential standing requirement. Id.
(citing Int’l Gamco, Inc. v. Multimedia Games, Inc., 504
F.3d 1273, 1278-79 (Fed. Cir. 2007)). The court then held
that A123 could not join UT because UT had not waived
Eleventh Amendment sovereign immunity in the Massa-
chusetts court. Id. at 280-81. Nonetheless, the court
remarked, A123 had an adequate remedy because UT has
waived Eleventh Amendment immunity in the Northern
District of Texas by filing suit for infringement in that
district. Id. at 281.
A123 appealed. We have jurisdiction pursuant to 28
U.S.C. § 1295(a)(1).
DISCUSSION
A123 advances multiple arguments on appeal. A123
first challenges the district court’s determination that UT
had not transferred all substantial rights in the patents
in suit to HQ, and thus that UT was a necessary party to
5 A123 SYSTEMS v. HYDRO-QUEBEC
A123’s declaratory judgment suit. A123 also challenges
the district court’s decision that UT could not be joined
because it had not waived Eleventh Amendment immu-
nity in the Massachusetts district court. Finally, A123
argues that the district court failed to expressly deter-
mine whether UT, even if a necessary party, was also an
indispensable party under Federal Rule of Civil Procedure
19 (“Rule 19”). We address each argument in turn.
I. Necessary Party
Under long-standing prudential standing precedent,
an exclusive licensee with less than all substantial rights
in a patent, such as a field-of-use licensee, lacks standing
to sue for infringement without joining the patent owner.
Int’l Gamco, 504 F.3d at 1278-79; see also Waterman v.
Mackenzie, 138 U.S. 252, 255 (1891). In general, as we
discuss below, an accused infringer must likewise join
both the exclusive licensee and the patentee in a declara-
tory action because the patentee is a necessary party. See
Enzo APA & Son, Inc. v. Geapag A.G., 134 F.3d 1090,
1094 (Fed. Cir. 1998) (“Having found Geapag to be with-
out standing for failing to join the patentee, it follows that
the court lacks jurisdiction over Enzo’s declaratory judg-
ment claims under Fed. R. Civ. P. 19 for nonjoinder.”).
A123 challenges the district court’s conclusion that
UT had not transferred all substantial rights in the
patents in suit to HQ in light of what A123 casts as HQ’s
own actions and representations to the contrary. Specifi-
cally, A123 contends that in an earlier lawsuit to enforce
the patents against third party Valence Technology, Inc.
(“Valence”) and in a letter threatening A123 with suit for
infringement, HQ held itself out as an exclusive licensee
of the technology claimed in the ’382 and ’640 patents and
as having the right to sublicense the technology and to
enforce the patents. A123 also argues that HQ’s at-
A123 SYSTEMS v. HYDRO-QUEBEC 6
tempted enforcement of the patents against Valence
without joining UT similarly indicates that HQ had
acquired all substantial rights in the patents from UT.
According to A123, the district court failed to consider any
of this evidence.
HQ responds that the district court did not commit
clear error by finding, based on the declarations of HQ’s
General Counsel and UT’s Associate Vice Chancellor, that
HQ holds an exclusive license to some, but not all, fields
of use under the patents in suit, mandating the legal
conclusion that HQ holds less than all substantial patent
rights. According to HQ, A123’s selective quotes from a
prior litigation do not show that HQ had acquired all
substantial rights, but rather are consistent with a field-
of-use license. Nevertheless, HQ asserts, even if state-
ments made by HQ could be read as suggesting it had
acquired all substantial rights, such statements cannot
affect or diminish UT’s actual retained rights in the
patents.
We agree with HQ. Based on the evidence of record,
the district court did not err in finding that HQ was a
field-of-use licensee and thus in concluding that UT had
not transferred all substantial rights to the patents to
HQ. Both HQ’s General Counsel, Pierre Gagnon, and
UT’s Associate Vice Chancellor testified to this effect.
Specifically, Gagnon testified that HQ holds an exclusive
license to two fields of use claimed in the patents in suit:
(1) an exclusive license to manufacture, use, sell, import,
and offer for sale rechargeable batteries with a solid
electrolyte, gelled, plasticized or not plasticized, and (2)
an exclusive and worldwide license to manufacture and
sell lithium iron phosphate (“LiFePO4”) in bulk quantities
for all applications, including, but not limited to, secon-
dary batteries with polymer or liquid electrolytes. J.A.
246-47 (emphasis added). Gagnon further testified that
7 A123 SYSTEMS v. HYDRO-QUEBEC
UT retained the right to license other parties in all other
patented fields of use, including (1) the production, use,
and sale of rechargeable batteries, including those with
lithium manganese, lithium titanium, and lithium nickel
cathode material, having a liquid electrolyte and (2) the
use of lithium iron phosphate with liquid electrolytes.
J.A. 247 (emphases added).
The representations by HQ on which A123 relies are
consistent with HQ being a field-of-use licensee. HQ’s
first amended complaint in its lawsuit against Valence
states that HQ obtained an “exclusive license to make,
use and sell a significant portion of the field of technology
described and claimed” in the patents in suit, including an
“exclusive, worldwide license to manufacture LiFePO4
and sell LiFePO4 in bulk quantities for all applications of
the technology,” and that these rights “are exclusive even
as against UT.” J.A. 621-22. These statements unmis-
takably identify HQ’s license as less than a complete
grant of rights under the patents, even if an exclusive
grant of certain rights. HQ states that it received an
exclusive license to a significant portion of the field of
technology, not all fields of technology described and
claimed in the patents. HQ also qualifies its statement
that it has exclusive rights to “all applications of the
technology” as limited to one cathode compound, lithium
iron phosphate (i.e., not lithium manganese, titanium, or
nickel phosphate). Similarly, in its letter accusing A123
of infringement, HQ uses the label “exclusive licensee,”
but it says nothing to indicate that its license is exclusive
as to all fields of use. Accordingly, none of these state-
ments contradicts Gagnon’s testimony.
But even if HQ had held itself out as having all sub-
stantial rights in the patents, such a unilateral represen-
tation could not alter the UT’s own rights in the patents.
In determining ownership for purposes of standing, labels
A123 SYSTEMS v. HYDRO-QUEBEC 8
given by the parties do not control. Rather, the court
must determine whether the party alleging effective
ownership has in fact received all substantial rights from
the patent owner. Waterman, 138 U.S. at 256 (“Whether
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.”); Aspex Eyewear, Inc. v. Miracle Optics,
Inc., 434 F.3d 1336, 1340 (Fed. Cir. 2006) (“To determine
whether an agreement to transfer rights to a patent at
issue amounts to an assignment or a license, we must
ascertain the intention of the parties and examine the
substance of what was granted.”). As such, even if HQ’s
earlier effort to sue Valence for infringement of the ’382
and ’640 patents without joining UT could be read as an
assertion of all substantial rights, as A123 urges, it can-
not alter the actual, and in this case limited, transfer of
rights made to HQ by UT.
In a related argument, A123 claims that the district
court could not have determined that UT had not trans-
ferred all substantial rights in the patent to HQ without
examining HQ and UT’s Patent License Agreement, as it
alone is determinative of the rights transferred. A123
contends, therefore, that the district court abused its
discretion in not granting A123’s requested discovery of
the Agreement. The record, however, does not reflect that
A123 in fact requested such discovery. A123 points to a
footnote in its September 11, 2006, opposition brief to
HQ’s motion to dismiss in which A123 states equivocally
that “[i]f the Court deems further review of the agreement
to be relevant to this motion, A123 would respectfully
request prompt discovery of it.” J.A. 436 (emphases
added). Because A123 never requested discovery of the
Agreement then or at any time prior to the district court’s
ruling on A123’s motion to reopen, its argument that the
9 A123 SYSTEMS v. HYDRO-QUEBEC
district court erred in not permitting discovery is waived.
Sage Prods., Inc. v. Devon Indus., Inc., 126 F.3d 1420,
1426 (Fed. Cir. 1997) (“If a litigant seeks to show error in
a trial court’s overlooking an argument, it must first
present that argument to the trial court.”).
In summary, we hold that because HQ had acquired
less than all substantial rights in the patents in suit, UT
is a necessary party to A123’s declaratory judgment
action. See Enzo, 134 F.3d at 1094; Vaupel Textilmaschi-
nen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 875-
76 (Fed. Cir. 1991).
II. Eleventh Amendment Sovereign Immunity
Although a necessary party, the district court held
that UT could not be joined as a defendant because it had
not waived Eleventh Amendment sovereign immunity in
the Massachusetts suit. A123 Sys., 657 F. Supp. 2d at
280-81. We review the district court’s decision on Elev-
enth Amendment immunity de novo. Regents of Univ. of
New Mexico v. Knight, 321 F.3d 1111, 1124 (Fed. Cir.
2003).
A123 does not dispute that UT is an arm of the State
of Texas and is therefore entitled to Eleventh Amendment
immunity. See Tegic Comm’ns Corp. v. Bd. of Regents of
Univ. of Texas Sys., 458 F.3d 1335, 1339-40 (Fed. Cir.
2006). Rather, A123 contends that UT waived its immu-
nity from suit in this case when, on September 11, 2006, it
filed suit against A123 for infringement of the same
patents in Texas. In support of its waiver argument,
A123 cites Genentech, Inc. v. Regents of University of
California, 143 F.3d 1446 (Fed. Cir. 1998), vacated, 527
U.S. 1031 (1999).
In response, HQ argues that UT’s voluntary participa-
tion in the Texas infringement suit against A123 does not
A123 SYSTEMS v. HYDRO-QUEBEC 10
constitute a retroactive waiver of its Eleventh Amend-
ment immunity in this separate action. Specifically, HQ
points to this court’s decision in Biomedical Patent Man-
agement Corp. v. California, Department of Health Ser-
vices, 505 F.3d 1328 (Fed. Cir. 2007) (“BPMC”), as holding
that a state university’s participation in one lawsuit does
not amount to a waiver of immunity in a separate lawsuit,
even one involving the same patents.
Again we agree with HQ. A123’s reliance on this
court’s decision in Genentech, 143 F.3d 1446, is unavail-
ing; the Supreme Court vacated that decision in light of
its decision in College Savings Bank v. Florida Prepaid
Postsecondary Education Expense Board, 537 U.S. 666
(1999), making it of no precedential value. Rather, BPMC
governs.
In BPMC, BPMC brought suit against the California
Department of Health Services (“DHS”) in the Northern
District of California, alleging infringement of U.S. Patent
4,874,693. 505 F.3d. at 1331. The district court dis-
missed the suit based on DHS’s assertion of Eleventh
Amendment immunity. Id. DHS, however, had inter-
vened in an earlier suit against BPMC, later dismissed for
improper venue, seeking a declaration of noninfringement
and invalidity of the same patent. Id. On appeal, BPMC
argued that DHS’s intervention in the earlier declaratory
judgment suit had waived its immunity in the later suit.
We disagreed and held that where a waiver of immunity
occurs in one suit, the waiver does not extend to an en-
tirely separate lawsuit, even one involving the same
subject matter and the same parties. Id. at 1339; see also
Tegic, 458 F.3d at 1342-43 (holding that submitting to an
infringement suit in one forum does not waive immunity
in a separate infringement suit filed in a different forum).
Accordingly, UT’s waiver of Eleventh Amendment immu-
nity in a patent infringement suit in the Northern District
11 A123 SYSTEMS v. HYDRO-QUEBEC
of Texas did not result in a waiver of immunity in this
separate infringement action. Absent a waiver, UT
cannot be joined.
III. Indispensable Party
If a party is deemed necessary under Rule 19(a), but
cannot be joined, then a court must consider whether that
party is indispensable and dismissal appropriate under
Rule 19(b). Dainippon Screen Mfg. Co., Ltd. v. CFMT,
Inc., 142 F.3d 1266, 1272 (Fed. Cir. 1998); Vaupel, 944
F.2d at 876 n.1. Rule 19(b) states that when joinder of a
necessary party is not feasible:
[T]he court must determine whether, in equity
and good conscience, the action should proceed
among the existing parties or should be dismissed.
The factors for the court to consider include:
(1) the extent to which a judgment rendered in the
person’s absence might prejudice that person or
the existing parties;
(2) the extent to which any prejudice could be
lessened or avoided . . . ;
(3) whether a judgment rendered in the person’s
absence would be adequate; and
(4) whether the plaintiff would have an adequate
remedy if the action were dismissed for nonjoin-
der.
Fed. R. Civ. P. 19(b). Since joinder is an issue not unique
to patent law, we apply the law of the regional circuit,
here the First Circuit. Katz v. Lear Siegler, Inc., 909 F.2d
1459, 1461 (Fed. Cir. 1990); see also Dainippon, 142 F.3d
at 1269 (applying Ninth Circuit law).
A123 argues that the district court abused its discre-
tion by not conducting an analysis under Rule 19. In
addition to repeating its argument that UT is not a neces-
A123 SYSTEMS v. HYDRO-QUEBEC 12
sary party, A123 also argues that UT is a dispensable
party, citing In re Olympic Mills Corp., 477 F.3d 1, 8-9
(1st Cir. 2007). Specifically, A123 contends that because
HQ and UT share the common goal of defending the
patents’ validity and have jointly sought legal assistance
in Texas to further that goal, the interest represented by
Rule 19(b)’s first factor—the interest of the absent
party—weighs against finding that UT is an indispensa-
ble party. A123 also contends that although the interest
represented by Rule 19(b)’s second factor, the defendant’s
interest in avoiding multiple lawsuits and inconsistent
relief, has little relevancy in the context of a declaratory
judgment suit, interests represented by Rule 19(b)’s
remaining factors, the interest of the courts and the
public in complete and efficient settlement of controver-
sies and the plaintiff’s interest in choosing the forum,
both weigh against finding that UT is an indispensable
party and in favor of allowing A123’s lawsuit to go for-
ward. See id. at 9 (citing Provident Tradesmens Bank &
Trust Co. v. Patterson, 390 U.S. 102, 108-11 (1968)).
HQ responds that the district court did not rule under
Rule 19, but rather it exercised its broad discretion to
yield jurisdiction over A123’s first-filed declaratory judg-
ment suit to a later-filed suit in which all the necessary
parties were joined. But regardless, HQ asserts, UT is an
indispensable party under Rule 19(b)’s four factors be-
cause (1) HQ, as a mere field-of-use licensee, cannot
adequately represent UT’s rights in the patents; (2) the
prejudice to UT cannot be lessened or avoided by fashion-
ing an invalidity ruling that affects only HQ; (3) the non-
joinder may leave A123 subject to additional infringement
claims by UT for fields of use not licensed by HQ; and (4)
A123 has an adequate remedy by counterclaiming for
noninfringement and invalidity in the Texas action,
where all the necessary parties are already joined. A123
13 A123 SYSTEMS v. HYDRO-QUEBEC
also argues that Rule 19(b)’s first factor weighs conclu-
sively in favor of dismissal when the absent party asserts
sovereign immunity, citing Republic of Philippines v.
Pimentel, 553 U.S. 851 (2008).
The district court did not undertake a Rule 19(b)
analysis in denying A123’s motion to reopen the case,
basing its decision instead on its discretion to decline to
exercise jurisdiction over a properly brought declaratory
judgment suit in favor of a later-filed suit. A123 Sys., 657
F. Supp. 2d at 279. The district court did state, however,
that it chose to exercise its discretion because A123’s first-
filed action would be subject to imminent dismissal for
failure to join a necessary party, id. at 280, making a Rule
19(b) analysis necessary, Dainippon, 142 F.3d at 1272.
The parties appear to have briefed the Rule 19(b) issue
below and do so again on appeal. Because the district
court made sufficient factual findings for us to determine
whether UT is an indispensable party, and because the
First Circuit has held that, although remand is the “pre-
ferred position,” it may rule on Rule 19(b) determinations
on appeal de novo, Olympic Mills, 477 F.3d at 9, we will
decide the issue in the first instance on appeal.
The district court addressed Rule 19(b)’s first factor—
“the extent to which a judgment rendered in the person’s
absence might prejudice that person or the existing par-
ties”—by finding that maintaining jurisdiction over the
A123’s declaratory judgment suit posed a significant risk
of prejudicing UT’s interests in the ’382 and ’640 patents.
A123 Sys., 657 F. Supp. 2d at 280. Specifically, the court
concluded that were it to reinstate the action and declare
the patents invalid, UT would lose all rights in its patents
despite the fact that it had no opportunity to defend its
interests in the litigation. Id. We must give sufficient
weight to the prejudice to UT, which is absent from this
suit based on a claim of sovereign immunity. Pimentel,
A123 SYSTEMS v. HYDRO-QUEBEC 14
553 U.S. at 866-69 (holding that the lower courts erred in
their analysis of Rule 19(b)’s first factor by “not ac-
cord[ing] proper weight to the compelling claim of sover-
eign immunity”). Although HQ and UT undoubtedly
share the same overarching goal of defending the patents’
validity, neither that goal nor UT’s decision to file suit
jointly with HQ in Texas demonstrates that UT’s interests
will be adequately represented by HQ in this action. HQ
and UT’s interests in the patents, although overlapping,
are not identical. HQ is a field-of-use licensee, and a
claim construction that serves its interests in obtaining
an infringement judgment against A123 in this case may
very well conflict with UT’s interests in subject matter not
licensed to HQ and in not risking the validity of its pat-
ents’ claims.
Dainippon, upon which A123 relies, is distinguish-
able. In Dainippon, the absent party, CFMT, was incor-
porated by the patent owner, CFM, as a wholly owned,
patent-holding company for its intellectual property, with
CFM assigning its patents to CFMT and CFMT licensing
them back exclusively to CFM. Id. at 1267-68. As such,
the parties’ interests in the asserted patents were not just
common, but identical. Accordingly, we held that CFMT’s
interests in the patents were adequately represented by
its exclusive licensee, finding it “highly relevant” that the
absent party was just a holding company, id. at 1272-73,
for “a patent should not be placed at risk of invalidation
by the licensee without the participation of the patentee,”
Schwarz Pharma, Inc. v. Paddock Labs., Inc. 504 F.3d
1371, 1374 (Fed. Cir. 2007).
In addition to finding that UT would be prejudiced,
the district court also implicitly found that a judgment
rendered without UT would be inadequate, Rule 19(b)’s
third factor. The court found that allowing a field-of-use
licensee like HQ to sue or be sued alone “poses a substan-
15 A123 SYSTEMS v. HYDRO-QUEBEC
tial risk of multiple suits and multiple liabilities against
an alleged infringer for a single act of infringement.”
A123 Sys., 657 F. Supp. 2d at 280; see also Schwarz, 504
F.3d at 1374 (“The presence of the owner of the patent as
a party is indispensable . . . in most cases to enable the
alleged infringer to respond in one action to all claims of
infringement for his act, and thus either to defeat all
claims in the one action, or by satisfying one adverse
decree to bar all subsequent actions.” (quoting Indep.
Wireless Tel. Co. v. Radio Corp. of Am., 269 U.S. 459, 468
(1926))). While A123 argues that this factor has little
relevancy in a declaratory judgment action, again relying
on Dainippon, 142 F.3d at 1272, we disagree. Because
HQ is a field-of-use licensee and UT has retained non-
overlapping rights in the patents in suit, UT may very
well be able to assert infringement claims against A123
that HQ cannot, creating the risk of multiple lawsuits and
of inconsistent relief.
Finally, the district court considered A123’s interest
in having a forum to litigate its defenses to claims of
infringement (i.e., an adequate remedy if the action is
dismissed for nonjoinder), finding that because UT has
waived immunity to suit in Texas, A123 may assert
counterclaims for a declaration of noninfringement and
invalidity in that action. A123 Sys., 657 F. Supp. 2d at
281. Accordingly, three of the four Rule 19(b) factors
weigh in favor of holding UT to be an indispensable
party. ∗ Accordingly, we hold that UT was not only a
necessary party but also an indispensable party, making
dismissal appropriate.
∗
With regard to Rule 19(b)’s second factor—“the
extent to which any prejudice could be lessened or
avoided”—the accused infringer here has not suggested
any alternative that would reduce the prejudice to UT.
A123 SYSTEMS v. HYDRO-QUEBEC 16
CONCLUSION
For the foregoing reasons, we affirm the district
court’s decision denying A123’s motion to reopen and thus
dismissing A123’s declaratory judgment suit.
AFFIRMED