UMF Corporation v. Norwex USA, Inc. et al
Filing
21
MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 3/19/2013:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UMF CORPORATION,
Plaintiff,
Case No. 12 C 9156
v.
Hon. Harry D. Leinenweber
NORWEX USA, INC. and NORWEX
ENVIRO PRODUCTS, INC.,
Defendants.
MEMORANDUM OPINION AND ORDER
Before the Court is Defendants Norwex USA, Inc. and Norwex
Enviro Products, Inc.’s Motion to Dismiss.
For the reasons stated
herein, the Motion is granted.
I.
FACTUAL BACKGROUND
In this case for monetary and injunctive relief, Plaintiff UMF
Corporation, (hereinafter, “UMF” or “Plaintiff”) contends that
Defendants Norwex USA, Inc. and Norwex Enviro Products, Inc. are
infringing on Plaintiffs’ United States Patent No. 6,258,455 (the
“`455 Patent”).
A.
‘455 Patent
The ‘455 Patent is titled “Antimicrobial Ultra-Microfiber
Clothe.”
Pl.’s Resp. in Opp. to Def.’s Mot. to Dismiss at 2 n.3.
It relates to an invention of a knitted cleaning cloth that is
comprised of antimicrobial fiber combined with ultra-microfiber,
microfiber, or microfilament.
Id.
The ‘455 Patent was issued by
the United States Patent and Trademark Office on July 10, 2001.
B.
The Parties
Sweports Ltd. (“Sweports”) is a Delaware corporation and the
owner of the ‘455 Patent.
Compl. at 3.
UMF is an Illinois corporation in the business of researching
and developing high performance textiles for commercial cleaning.
UMF contends it has an exclusive license to the ‘455 Patent
pursuant to an Exclusive Licensing Agreement UMF entered into with
Sweports in October 2000.
Norwex
(hereinafter,
USA,
Inc.
and
collectively,
Norwex
the
Enviro
“Defendants”
Products
or
Inc.
“Norwex”) are
affiliated direct-sales companies that market and sell environmentfriendly cleaning products. Among their various cleaning products,
Norwex sells microfiber cloths.
C.
Procedural History
In approximately November 2011, Norwex received a cease and
desist letter
from
Sweports
and
UMF.
Allegedly,
the
letter
explained that Sweports was the owner of the ‘455 Patent and that
UMF had the exclusive license to it.
The letter demanded that
Norwex cease to market certain microfiber cloths because such
marketing was infringing on the ‘455 Patent.
After receiving the letter, Norwex filed suit in the United
States District
Court
for the
Northern
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District of
Texas in
December 2011.
In its Complaint, Norwex named Sweports and UMF as
defendants and sought a declaratory judgment that it was not
infringing on the ‘455 Patent.
See Defs.’ Mot. to Dismiss; Ex. B.
In response to the Complaint, UMF and Sweports moved to transfer
the case to the Northern District of Illinois pursuant to 28 U.S.C.
§ 1404(a).
The district court in Texas granted this motion and on
March 15, 2012, the case was transferred to Chief Judge James F.
Holderman in the Northern District of Illinois.
Shortly after the transfer, however, three creditors filed an
involuntary bankruptcy petition against Sweports.
Sweports, Ltd., 476 B.R. 540 (N.D. Ill. 2012).
See In re
The bankruptcy
petition had the effect of staying Norwex’s patent action before
Chief Judge Holderman.
in
bankruptcy
court
On June 21, 2012, Sweports filed a motion
seeking
relief
from
the
automatic
stay.
Specifically, Sweports requested that the bankruptcy court lift the
stay so it could continue to litigate the patent action.
On August 15, 2012, Bankruptcy Judge A. Benjamin Goldgar
denied Sweports’ motion and determined that the ‘455 Patent was
included in Sweports’ bankruptcy estate.
Id. at 545.
In light of
this ruling, Norwex filed a notice of voluntary dismissal of the
patent action before Chief Judge Holderman.
On November 15, 2012, UMF filed the instant suit in this
Court.
In UMF’s Complaint, it contends that Norwex is infringing
on the ‘455 Patent.
On December 18, 2012, Norwex responded to
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UMF’s Complaint with a Motion to Dismiss pursuant to Federal Rule
of Civil Procedure 12(b)(1).
In its Motion, Norwex argues UMF
lacks standing to pursue an infringement claim.
II.
LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(1) allows the Court to
dismiss a case for lack of jurisdiction over the subject matter.
FED. R.
CIV.
P.
12(b)(1).
Standing
to
sue
is
jurisdictional requirement in every federal action.
a
threshold
Sicom Sys.,
Ltd. v. Agilent Techs., Inc., 427 F.3d 971, 975 (Fed. Cir. 2005).
Rule 12(b)(1) addresses standing issues, and federal courts “may
not grant relief when standing does not exist.”
Heartland Direct,
Inc. v. Chevron U.S.A. Inc., No. 06 C 1029, 2006 WL 2524139 at *2
(N.D. Ill. Aug. 30, 2006).
When considering a Rule 12(b)(1) motion challenging subject
matter jurisdiction, district courts may look beyond the pleadings
and consider all competent evidence.
Hay v. Indiana State Bd. of
Tax Comm'rs, 312 F.3d 876, 879 (7th Cir. 2002).
Because standing
is an indispensable part of a plaintiff’s case and more than a mere
pleading requirement, a plaintiff must establish standing “in the
same way as any other matter on which the plaintiff bears the
burden proof, i.e., with the manner and degree of evidence required
at the successive stages of the litigation.”
Id. quoting Lujan v.
Defenders of Wildlife, 504 U.S. 555, 561 (1992).
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III.
DISCUSSION
In its Motion, Norwex raises two distinct arguments.
First,
Norwex claims UMF is not an exclusive licensee of the ‘455 Patent
and
therefore
not
infringement claim.
a
patentee
with
standing
to
pursue
an
Alternatively, Norwex argues that even if UMF
is an exclusive licensee, Sweports is an indispensable party who
must be joined since Sweports did not transfer UMF all substantial
rights in the ‘455 Patent.
The Court will address each argument in
turn.
A.
Standing & 35 U.S.C. § 281
“Standing to sue for patent infringement derives from the
Patent Act.”
Prima Tek II, LLC v. A-Roo Co., 222 F.3d 1372, 1377
(Fed. Cir. 2000). The Patent Act provides that “[a] patentee shall
have remedy by civil action for infringement of a patent.”
U.S.C. § 281.
35
The term “patentee” includes “not only the patentee
to whom the patent was issued but also the successors in title to
the patentee.” Id. § 100(d).
Exclusive licensees holding all
substantial rights to the patent satisfy this standard.
Prima Tek
II, L.L.C. v. A-Roo Co., 222 F.3d 1372, 1377 (Fed. Cir. 2000).
1.
The Exclusive Licensing Agreement and ‘455 Patent
Norwex argues that the Exclusive Licensing Agreement (“the
Agreement”) between UMF and Sweports does not include the ‘455
Patent because the Agreement refers to a line of products, not a
patent.
Norwex contends that since the Agreement never references
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the ‘455 Patent specifically, UMF cannot have an exclusive license
to it.
In relevant part, the Agreement grants:
. . . UMF the sole and exclusive right to
manufacture, to have manufactured for it, to
use and to sell the ITEM, and to sublicense
its rights, throughout the world, and in
addition, grants UMF the exclusive right to
make, use and sell any invention which is
embodied in the ITEM or which is the subject
of any patents to issue from any patent
applications which may be filed on the ITEM,
LICENSOR [Sweports] also grants to UMF all
merchandising rights in the ITEM including
packaging, trademarks and copyrights.
Pl.’s Resp. in Opp. to Defs.’ Mot.; Ex. A [ECF No. 16-1 Page ID
#182].
“ITEM” is described in an attachment to the Agreement. The
attachment defines “ITEM” as “[a]ll PerfectClean products including
Antimicrobial Textiles and associated hardware components.”
[ECF No. 16-1, Page ID #186].
Id.
In addition, it provides that “All
PerfectClean products” include “[a]ll current and future products
developed under the PerfectClean brand including any and all woven
and knitted textile products combining technologies/chemistry with
micro-denier fibers.”
Id.
In light of the aforementioned language, the Court finds the
Agreement between the parties grants UMF an exclusive license
relating to the ‘455 Patent.
The Court rejects Norwex’s argument
that UMF is not a licensee since the Agreement fails to reference
the ‘455 Patent.
The Agreement is clear in its grant to UMF “to
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make, use and sell any invention which is embodied in the ITEM.”
Pl.’s Resp. in Opp. to Defs.’ Mot.; Ex. A [ECF No. 16-1 Page ID
#182] (emphasis added).
As previously mentioned, the ‘455 Patent
is a patent for cleaning cloths comprised of antimicrobial fiber.
Thus, the Court considers the ‘455 Patent an invention embodied in
the “ITEM.”
Because of this, the Court finds UMF is an exclusive
licensee of the ‘455 Patent.
2.
Transfer of “All Substantial Rights”
Norwex also argues that even if the Agreement constitutes an
exclusive license to UMF for the ‘455 Patent, UMF still lacks
standing.
Norwex claims that since Sweports did not transfer “all
substantial rights” of the ‘455 Patent to UMF, Sweports is a
necessary party who must be joined for the action to proceed.
If a patentee transfers “all substantial rights” under the
patent, the transfer constitutes an assignment, and the assignee is
deemed “the effective patentee . . . for purposes of holding
constitutional standing to sue another for patent infringement in
its own name.”
Sicom, 427 F.3d at 976.
Licensees that do not
receive “all substantial rights” to a patent through a licensing
agreement may still have standing to sue in some circumstances. “A
party that is neither the legal owner of the patent nor the
transferee of all substantial rights in the patent still has
standing to sue for infringement if that party has a legally
protected interest in the patent created by the Patent Act, so that
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it can be said to suffer legal injury from an act of infringement.”
Propat Int'l Corp. v. RPost, Inc., 473 F.3d 1187, 1193 (Fed. Cir.
2007).
Exclusive licensees, meaning those parties with “the exclusive
right to make, use, or vend the invention,” have this type of
interest.
Id.
However, “[u]nlike the patentee or the transferee
of all substantial rights in the patent . . . an exclusive licensee
ordinarily may not sue in its name alone, but must join the patent
owner in an action brought against an accused infringer.”
Id.
In order to determine whether a licensing agreement provides
a licensee with “all substantial rights” in a patent the courts
examine a number of factors. See, generally, Alfred E. Mann Found.
for Scientific Research v. Cochlear Corp., 604 F.3d 1354, 1360
(Fed. Cir. 2010).
These factors include:
(1) whether the licensor has the power to bar
the licensee from transferring its interest to
a third party; (2) whether the licensor
maintains an equity interest in the proceeds
of licensing and litigation activities; (3)
whether the licensor has a right to notice of
licensing decisions, and, if so, the right to
veto them; (4) whether the licensor has a
right to notice of litigation decisions, and,
if so, the right to veto them; (5) whether the
licensor has the ability to terminate the
licensing agreement in certain circumstances;
and (6) whether the licensee or licensor bears
the obligation to maintain the patent.
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New Medium Technologies LLC v. Barco N.V., 644 F.Supp.2d 1049,
1051-53 (N.D. Ill. 2007) (citing Propat Int'l Corp., 473 F.3d at
1193).
“Frequently . . . 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” in determining whether all
substantial rights have been transferred.
Alfred E. Mann Found.,
604 F.3d at 1361.
If the “licensor retains a right to sue accused
infringers,
right
that
often
precludes
a
finding
substantial rights were transferred to the licensee.”
that
all
Id.
In this case, the Agreement has specific provisions governing
infringement litigation.
In relevant part the Agreement states:
In the event of infringement of any patent or
other right that may be issued to or owned by
LICENSOR [Sweports] on the ITEM, UMF may
prosecute an infringement suit, in the name of
LICENSOR
[Sweports],
if
appropriate,
as
determined in the sole discretion of UMF after
notice
to
LICENSOR
[Sweports]
of
that
intention. UMF may then select legal counsel
and shall bear all the legal fees and costs.
The balance of any recovery (in excess of
attorneys [sic] fees, costs and other out-ofpocket expenses) shall be divided 80/20
between
UMF
and
LICENSOR
[Sweports],
respectively. If LICENSOR [Sweports] becomes
aware
of
infringement
described
above,
LICENSOR [Sweports] may notify UMF of its
desire to prosecute an infringement suit. If
UMF has not commenced the prosecution of an
infringement action with in thirty (30) days
of receipt of LICENSOR’s notice, LICENSOR
[Sweports] may prosecute the suit . . .
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Pl.’s Resp. in Opp. to Defs.’ Mot.; Ex. A [ECF No. 16-1 Page ID
#183].
After reviewing this language, it is clear that Sweports
retained a right to prosecute an infringement suit.
It is equally
clear that the Agreement requires UMF to provide notice to Sweports
prior to initiating an infringement suit and that Sweports shares
in the proceeds of a successful suit.
These are all factors which
suggest that UMF did not receive “all substantial rights” to the
‘455 Patent.
See Alfred E. Mann Found., 604 F.3d at 1361-62
(holding that “a broad right to decide whether to bring suit and to
control litigation is thoroughly inconsistent with an assignment”
of
all
substantial
rights);
see
also
Abbott
Laboratories
v.
Diamedix Corp., 47 F.3d 1128, 1132 (Fed. Cir. 1995) (finding that
a licensor’s retained right to sue alleged infringers if the
exclusive licensee declined to do so precluded an exclusive license
agreement from being deemed a virtual assignment of the patents-insuit).
While UMF argues that Sweports right to sue is “illusory”
since
UMF
could
grant
an
alleged
sublicense, the Court disagrees.
infringer
a
royalty-free
While the Agreement permits UMF
to sublicense its rights, the Agreement is void of any language
which suggests that UMF has the ability to grant a royalty-free
sublicense.
true.
Instead, the Agreement suggests the opposite to be
“LICENSOR [Sweports] and UMF shall share equally in the
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revenues (including all advances, royalties, minimum payments and
guaranteed payments) actually received by UMF from third parties
for any sublicense of the ITEM . . . ”
Pl.’s Resp. in Opp. to
Defs.’ Mot.; Ex. A [ECF No. 16-1 Page ID #182] (emphasis added).
Moreover, Sweports has retained the right to terminate the
Agreement in the event that UMF “does not introduce (offer for
sale, display, advertise, or sell) the ITEM.”
Pl.’s Resp. in Opp.
to Defs.’ Mot.; Ex. A [ECF No. 16-1 Page ID #183].
terminate
is
yet
another
factor
the
courts
This ability to
consider
when
determining whether all substantial rights have been transferred.
New Medium Technologies, LLC, 644 F.Supp.2d at 1051-53.
Finally, Norwex points to Sweports’ right to develop “current
and future products developed under the PerfectClean brand[.]” Id.
[ECF No. 16-1, Page ID # 186].
As the Federal Circuit has held, a
patent owner’s “right to make and use, for its own benefit,
products
embodying
the
inventions
claimed
in
the
patent”
inconsistent with a transfer of all substantial rights.
is
Abbott
Labs. v. Diamedix Corp., 47 F.3d 1128, 1132 (Fed. Cir. 1995).
Thus,
looking
at
all
the
aforementioned
rights
Sweports
retained, the Court finds Sweports did not transfer all substantial
rights to UMF in the ‘455 Patent.
Because of this, Sweports is a
necessary and indispensable party who must be joined for the
litigation to proceed.
See Morrow v. Microsoft Corp., 499 F.3d
1332, 1339 (Fed. Cir. 2007).
The Court therefore dismisses UMF’s
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complaint without prejudice.
UMF is permitted to re-file its
Complaint after Sweports’ bankruptcy proceedings have concluded or
the stay issued in the bankruptcy court is lifted and Sweports can
be joined properly as a Plaintiff.
IV.
CONCLUSION
For the reasons stated herein, the Court Grants Defendants’
Motion to Dismiss.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
Date:3/19/2013
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