TRENDX ENTERPRISES v. ALL-LUMINUM PRODUCTS, INC.
Filing
19
OPINION filed. Signed by Judge Freda L. Wolfson on 4/18/2012. (mmh)
*FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
The Honorable Freda L. Wolfson, U.S.D.J.
:
TRENDX ENTERPRISES, INC.
Civil Action No. 11-2512
:
Plaintiff,
:
vs.
:
:
ALL-LUMINUM PRODUCTS, INC.
d/b/a RIO BRANDS
:
Defendant.
:
For Plaintiff:
Gregory S. Chiarello
Vladeck, Waldman, Elias, & Engelhard, P.C.
1501 Broadway, Suite 800
New York, NY 10036
For Defendant:
Thomas A. Cunniff
Fox Rothschild LLP
Princeton Pike Corporate Center
997 Lenox Drive, Building 3
Lawrenceville, NJ 08648-2311
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OPINION
WOLFSON, United States District Judge:
Presently before the Court is a motion by Defendant All-luminum Products, Inc.,
doing business as Rio Brands (“Defendant” or “Rio Brands”), for partial judgment on
the pleadings under Rule 12(c), or alternatively, for partial summary judgment.
Defendant asks the Court to dismiss Plaintiff Trendx Enterprises, Inc.’s (“Plaintiff” or
“Trendx”) patent infringement claim (Count I) because Plaintiff failed to join the patent
owner of the patents-in-suit and Plaintiff by itself lacks sufficient interest in the patents
to bring this action on its own. Defendant does not attack any of Plaintiff’s seven other
causes of action. For the reasons that follow, Defendant’s motion is granted and
Plaintiff’s claim of patent infringement is dismissed without prejudice.
I.
BACKGROUND
In addressing Defendant’s Motion to Dismiss, this Court must accept Plaintiff’s
allegations contained in the Complaint as true. See Toys “R” Us, Inc. v. Step Two, S.A.,
318 F.3d 446, 457 (3d Cir. 2003); Dayhoff, Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1302
(3d Cir. 1996). Thus, the facts recited below taken from the Complaint do not represent
this Court’s factual findings.
Plaintiff alleges that Defendant infringes the following four patents: U.S. Patent
No. 5,120,016 (the ’016 patent); No. 5,575,234 (the ’234 patent); No. 5,813,163, (the ’163
patent); and No. 5,941,191 (the ’191 patent) (collectively the “patents-in-suit” or “T-Bar
patents”). The patents relate to technology that secures poles, umbrellas, rods, or
similar objects to a structure, such as a deck or dock, without screws, nails, glue, or
other means that may damage the deck or dock surface. Compl., ¶ 10. Plaintiff Trendx
manufactures and markets products that utilize the T-Bar patents under the name
“Deckster.” Id. ¶¶ 9, 11. In particular, Trendx manufactures and sells devices “designed
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to be a receptacle for various items (i.e. Tiki torches, flag poles, market umbrellas, etc.)
so they could be securely held to a deck or dock.” Id. ¶ 11. Trendx alleges that Rio
Brands has marketed and continues to market infringing devices also under the
“Deckster” name. Id. ¶ 34.
The question before me is whether Trendx has standing to bring a claim for
infringement. Trendx admits it does not own the patents at issue. Dysar Products, Inc.
and Edward Dysarz (collectively “Dysarz”) own the patents.1 Compl., ¶ 7. But Trendx
maintains it is the exclusive licensee of the T-Bar patents and controls all substantial
rights in the patents. Id. ¶ 6.
Dysarz has a history with both Trendx and Rio Brands. Dysarz first licensed the
T-Bar patents to Trendx through two agreements, one in 1999 and one in 2000, which
gave Trendx the exclusive right to manufacture, market, or sell products containing the
patented technology, excluding all marine products. Compl., ¶ 8. Dysarz retained the
right to its technology as applied to marine products, such as fishing rod holders. Id.
Trendx paid Dysarz royalties in exchange for its license. Id. Shortly after signing its
license with Dysarz, Trendx entered into a sublicense agreement with Rio Brands. Id. ¶¶
15, 16. Then in September 2005, Dysarz terminated its agreement with Trendx. Id. ¶ 21.
Because this ended Trendx’s right to sublicense, Rio Brand no longer had rights to the
patented technology. Id. Less than a year later, in August 2006, Dysarz and Trendx
renegotiated a licensing agreement, again limited only to nonmarine products. Id. ¶ 23.
Trendx alleges that Dysar Products, Inc., owns the patents. Compl., ¶ 7. Rio Brands
claims that the Patent and Trademark Office records show that Edward Dysarz owns the
patents. Def. Motion, n.2. Whether Dysar Products, Inc., Edward Dysarz, or both own
the patents is of no consequence here; it is only material that Trendx admits it does not
own the patents-in-suit.
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Although Trendx notified Rio Brands that it had reacquired rights to the patents, they
did not enter into a new sublicense. Id. ¶ 24.
In September 2006, Dysarz contacted Rio Brands to discuss past royalties from
September 2005 through August 2006. Compl., ¶ 28. These conversations continued
without success and in July 2008, Rio Brands brought a declaratory judgment action
against Dysarz in the Eastern District of Pennsylvania to declare that its products did
not infringe the ’016 patent, the ’234 patent, and the ’163 patent. All-luminum Products,
Inc. v. Dysarz, No. 08-3462, Complaint (E.D. Pa. July 24, 2008). Dysarz then filed a
patent infringement action in the Eastern District of Texas on the same three patents.
Dysarz v. All-luminum Products, Inc., No. 08-402, Complaint (E.D. Tex. Oct. 20, 2008).
In December 2009, Dysarz and Rio Brands settled with regards to the ’016 patent, the
’234 patent, and the ’163 patent (“Settled Patents”). Compl., ¶ 30. Dysarz released its
claims against Rio Brands and granted Rio Brands an exclusive license in the ’016 patent
and a covenant not to sue with regards to the ’234 and the ’163 patents. License and
Settlement Agreement, Articles II and III, attached as Ex. G to Declaration of Thomas
Cunniff (“Settlement Agmt”). The ’191 patent was not at issue in those matters. Trendx
was not a party to either lawsuit or to the settlement. Compl., ¶¶ 29, 30. Trendx claims
that this settlement has no effect on its patent rights as exclusive licensee of nonmarine
products incorporating the T-Bar patented technology.
Two issues arise from these facts: (1) does Trendx’s status as licensee give it
standing to sue on these patents and (2) what effect, if any, does the settlement between
Dysarz and Rio Brands have on this action.
II.
LEGAL STANDARD
a. Motion for Judgment on the Pleadings
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The standard that a court applies on a motion for judgment on the pleadings
pursuant to Rule 12(c) is the same standard that a court applies in deciding a motion to
dismiss pursuant to Rule 12(b)(6). Turbe v. Government of Virgin Islands, 938 F.2d
427, 428 (3d Cir. 1991); see also Spruill v. Gillis, 372 F.3d 218, 223 n.2 (3d Cir. 2004).
When reviewing a motion to dismiss, courts “accept all factual allegations as true,
construe the complaint in the light most favorable to the plaintiff, and determine
whether, under any reasonable reading of the complaint, the plaintiff may be entitled to
relief.” Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (internal
citations and quotations omitted). In Bell Atlantic Corporation v. Twombly, 550 U.S.
544 (2007), the Supreme Court clarified the 12(b)(6) standard. Specifically, the Court
“retired” the language contained in Conley v. Gibson, 355 U.S. 41, 45-46 (1957), that “a
complaint should not be dismissed for failure to state a claim unless it appears beyond
doubt that the plaintiff can prove no set of facts in support of his claim which would
entitle him to relief.” Id. at 561 (quoting Conley, 355 U.S. at 45-46). Instead, the factual
allegations set forth in a complaint “must be enough to raise a right to relief above the
speculative level.” Id. at 555. As the Third Circuit has stated, “[t]he Supreme Court’s
Twombly formulation of the pleading standard can be summed up thus: ‘stating . . . a
claim requires a complaint with enough factual matter (taken as true) to suggest’ the
required element. This ‘does not impose a probability requirement at the pleading
stage,’ but instead ‘simply calls for enough facts to raise a reasonable expectation that
discovery will reveal evidence of the necessary element.” Phillips, 515 F.3d at 234
(quoting Twombly, 550 U.S. at 556).
In affirming that Twombly standards apply to all motions to dismiss, the
Supreme Court recently explained the following principles. “First, the tenet that a court
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must accept as true all of the allegations contained in a complaint is inapplicable to legal
conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009); Fowler v.
UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). “Second, only a complaint that
states a plausible claim for relief survives a motion to dismiss.” Ashcroft, 129 S. Ct. at
1950. The plausibility standard requires that “the plaintiff plead[ ] factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged” and demands “more than a sheer possibility that a defendant has
acted unlawfully.” Id. at 1949 (quoting Twombly, 550 U.S. at 556). Ultimately, “a
complaint must do more than allege the plaintiff’s entitlement to relief. A complaint has
to ‘show’ such an entitlement with its facts.” Fowler, 578 F.3d at 211. In evaluating a
motion to dismiss, a court may consider only the complaint, exhibits attached to the
complaint, matters of public record, and undisputedly authentic documents if the
complainant’s claims are based upon these documents. Pension Benefit Guar. Corp. v.
White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993). Importantly, “a court may
consider an undisputedly authentic document that a defendant attaches as an exhibit to
a motion to dismiss if the plaintiff's claims are based on the document. Otherwise, a
plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing
to attach a dispositive document on which it relied.” Id. Accordingly, the Court has
reviewed the documents that form the basis of Plaintiffs’ Complaint and that were
attached to the Declaration of Thomas Cunniff in support of Rio Brand’s Motion for
Judgment on the Pleadings.2 Because I can decide Defendant’s motion based on the
Plaintiff argues that any materials beyond its license agreement with Dysarz, including
the settlement agreement between Dysarz and Rio Brands, is outside the pleadings and
therefore is beyond what I may rely on in deciding Defendant’s motion for judgment on
the pleadings. Pl. Opp., at 20. Alternatively, Plaintiff argues that if I treat Defendant’s
2
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pleadings and the license agreement between Dysarz and Trendx, which both parties
agree is appropriate to consider, I need not convert Defendant’s motion for partial
judgment on the pleadings into a motion for partial summary judgment.
III.
DISCUSSION
a. Trendx’s Standing to Sue
My threshold inquiry is whether Trendx may bring its infringement action based
on patents owned by someone else. Trendx argues it has all essential rights to the
patents-in-suit; Rio Brands argues that Trendx lacks sufficient standing and must join
Dysarz.
The Patent Act allows a “patentee” civil remedies for patent infringement. 35
U.S.C. § 281. The Act defines “patentee” to include not only the person to whom the
patent has issued, but successors in title to the patentee and their assignees. 35 U.S.C. §
100(d). Therefore, a suit for infringement must ordinarily be brought by a party holding
“legal title” to the patent. See Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1579
(Fed. Cir. 1991). Were Trendx an assignee of Dysarz’s patent rights, then there is no
question it would have standing to bring suit on its own. See Vaupel Textilmaschinen
KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 875 (Fed. Cir. 1991). But where, as
here, the suing party is a licensee – even a purported exclusive licensee – then the
question becomes whether Trendx can be considered a “virtual assignee.” See Enzo Apa
motion as one for summary judgment, then I should afford Plaintiff an opportunity to
conduct discovery. Plaintiff does not dispute that Exhibit G attached to Mr. Cunniff’s
declaration is the true and correct copy of Dysarz’s settlement and license agreement
with Rio Brands, and both Plaintiff’s Complaint and Plaintiff’s Opposition discuss the
interactions between Dysarz and Rio Brands, including their settlement, at length.
Complaint, ¶¶ 24-31; Pl. Opp., at 1-4, 17-20. Therefore, while it appears it would be
appropriate for me to consider the settlement agreement, my decision today is not based
on nor informed by any language in or provision of the settlement agreement and I need
not address the issue.
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& Son, Inc. v. Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998) (“The limited exception
we have provided conferring standing on licensees is restricted to virtual assignees. As
such, the licensing arrangement conferring such must, logically, resemble an
assignment in both form and substance.”); see also Waterman v. Mackenzie, 138 U.S.
252, 255 (1891).
Nearly a century ago, the U.S. Supreme Court held that, as a general rule, an
exclusive licensee must join the patent owner if it seeks to enforce the owner’s patent in
court: “Any rights of the licensee must be enforced through or in the name of the owner
of the patent…” Indep. Wireless Tel. Co. v. Radio Corp. of Am., 269 U.S. 459, 467-468
(1926); see also Prima Tek II, L.L.C. v. A-Roo Co., 222 F.3d 1372, 1377 (Fed. Cir. 2000)
(“[T]his court continues to adhere to the principle set forth in Independent Wireless that
a patentee should be joined, either voluntarily or involuntarily, in any infringement suit
brought by an exclusive licensee.”). The Federal Circuit has recognized an exception to
this rule: “where the patentee makes an assignment of all substantial rights under the
patent, the assignee may be deemed the effective ‘patentee’ under 35 U.S.C. § 281 and
thus may have standing to maintain an infringement suit in its own name.” Prima Tek
II, 222 F.3d at 1377 (citing Vaupel, 944 F.2d at 875); Speedplay, Inc. v. Bebop, Inc., 211
F.3d 1245, 1253 (Fed. Cir. 2000) (finding a company had standing because the company
was, by virtue of two written agreements between the company and the inventor, the “de
facto” owner of those patents).
i. A field-of-use licensee must join the patent owner
Whether Trendx has been granted substantial rights under the patent must be
determined within the context of what rights Dysarz actually granted to Trendx. The
parties agree that Dysarz did not grant Trendx a complete license to its patents; Dysarz’s
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license to Trendx was limited to nonmarine products. Compl., ¶ 23; Def. Brief, at 2; Pl.
Opp., at 2. Dysarz specifically retained its rights for marine products. Section 1.01 of
the license agreement between Dysarz and Trendx reads: “Subject to the terms of this
License Agreement, LICENSOR [Dysarz] hereby grants to LICENSEE [Trendx] an
exclusive license to develop, sell, manufacture and market said Devices that are not
specifically of a marine nature.” License Agreement, § 1.01, attached as Ex. B to Cunniff
Declaration (“License Agmt”). The Third Whereas Clause reads, in part: “LICENSEE
will not, however, use the Devices to manufacture, market, and sell a fishing pole holder,
boat cleats and stand-offs or any other products that are specifically of a marine nature;
LICENSOR retains these specific uses….” Id. at 1. In other words, Dysarz divided its
rights to the patented articles based on the type of product each party would
manufacture or sell.
Where a patentee parses its rights based on the “field of use,” the Federal Circuit
has held, relying on Supreme Court precedent, the patent owner must be joined because
the licensee does not have substantial rights. In International Gamco, Inc. v.
Multimedia Games, Inc., 504 F.3d 1273 (Fed. Cir. 2007), the plaintiff, who possessed an
exclusive license only as to “the lawful operation of lottery games authorized by the New
York State Lottery in the state of New York,” id. at 1275-76, sued for infringement of a
patent on a gaming system. The patent owner retained all other rights in the patent,
including for non-lottery gaming systems. Id. The Federal Circuit held that this was a
field-of-use license: a license where the patentee granted rights and retained rights
based on subject matter. Id. at 1278. This was an issue of first impression for the court,
which found guidance from an earlier Supreme Court opinion:
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While this court has not considered the ability of an exclusive field of use
licensee to sue in its own name, the Supreme Court offered guidance in
Pope Mfg. Co. v. Gormully & Jeffery Mfg. Co., 144 U.S. 248 (1892). The
Supreme Court held that a plaintiff with exclusive rights limited to a
particular embodiment of the claimed invention did not have standing to
sue in his own name. Id. at 252. In Pope, the licensee received all
substantial rights in the patent “so far as said patent relates to or covers
the adjustable hammock seat or saddle.” Id. at 249. Claim 2 of the patent
covered the hammock seat while three other claims set forth combinations
of which the hammock seat was only one element. Id. at 250. Thus, the
plaintiff essentially received exclusive rights to only one claim of the
patent.
With this setting, the Court’s reasoning focused on the potential for
multiple litigations against any one defendant and among the licensees
themselves:
It was obviously not the intention of the legislature to permit
several monopolies to be made out of one, and divided
among different persons within the same limits. Such a
division would . . . subject a party who, under a mistake as to
his rights, used the invention without authority, to be
harassed by a multiplicity of suits instead of one, and to
successive recoveries of damages by different persons
holding different portions of the patent-right in the same
place . . . . [I]t might lead to very great confusion to permit a
patentee to split up his title within the same territory into as
many different parts as there are claims.
Id. at 250-52 (quotations omitted). Thus, the Court observed that even
exclusive licenses to specific embodiments or claims of a patent
engendered the threat of multiple suits for any given act of infringement.
Id. at 1277-78. Persuaded by the Supreme Court’s reasoning, the Federal Circuit held:
“this court’s prudential standing requirement compels an exclusive licensee with less
than all substantial rights, such as a field of use licensee, to join the patentee before
initiating suit.” Id. at 1278-79.3 The Federal Circuit made clear that its holding was not
Judge Friedman filed a “dubitante opinion” doubting the court’s holding, but not
dissenting. In particular, Judge Friedman did not believe that the Supreme Court’s
holding in Pope mandated that a patent owner must be joined in all cases involving a
field-of-use license. Judge Friedman reasoned as follows: “No one questions, as the
Supreme Court recognized in Pope, that a territorially-limited exclusive license
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limited only to licenses that parsed out rights depending on particular patent claims:
“The claim-by-claim exclusive license in Pope is indistinguishable from an exclusive
field of use license insofar as both types of licenses divide the scope of a patent right by
its subject matter.” Id. at 1278.
The Federal Circuit recently reaffirmed its holding: “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.” A123 Sys. v. Hydro-Quebec, 626 F.3d 1213, 1217
(Fed. Cir. 2010). In A123, the patentee granted a license to its patents related to lithium
battery technology for a particular type of rechargeable battery and to sell batteries in
bulk quantities; the patentee retained the remaining rights. Id. at 1218. Therefore, the
patentee was a necessary party to the lawsuit. Id. at 1219. Trendx states that these cases
are factually distinguishable. Pl. Opp., at 11, n.5. But Trendx provides no analysis
beyond this bald conclusion, other than two parenthetical comments discussing the
patented technology at issue in International GamCo and A123 Sys. Many patent cases
will involve significantly different technologies, but I am not convinced why this, by
authorizes the licensee to sue for infringement. The statute governing patent
assignments, 35 U.S.C. § 261, however, contains parallel sentences that seem to treat
geographical and field-of-use assignments the same…Under this language, it seems
unlikely that Congress intended only the latter (geographical), but not the former (‘any
interest’ in a patent) assignees to be able to sue in their own names.” Int’l Gamco, 504
F.3d at 1280. Judge Friedman’s point is well taken and I too question whether such a
blanket rule is appropriate or necessary. Nevertheless, the Federal Circuit’s holding is
clear. See Eisai Co., Ltd. v. Mutual Pharmaceutical Co., Inc., No. 06-3613, 2007 U.S.
Dist. LEXIS 93585, at *41 (D.N.J. Dec. 20, 2007) (“[D]ecisions of the Federal Circuit on
substantive questions of patent law are binding precedent on district courts.”)
(quotation omitted). Moreover, the facts of this case offer no reason to depart from
precedent because as I discuss, infra, Dysarz did not grant Plaintiff substantial rights to
its patents.
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itself, is any reason to depart from precedent that is on point with a relevant legal issue
before me.
Trendx also argues it was not granted a field-of-use license, but that Dysarz’s
divvying up of its rights was “rather more akin to a geographic distinction.” Pl. Opp., at
10. The Patent Act specifically allows for geographically-restricted assignments and the
Supreme Court has held that exclusive territorial licensees need not join the licensor to
maintain a suit for patent infringement. Waterman, 138 U.S. at 255. I am not
persuaded by Trendx’s argument. A geographic license is one where the parties divide
up patent rights based on the location where those rights may be performed or enforced;
for example, a licensor might retain the right to exclusively sell a patented product in
New Jersey, while licensing the right to exclusively sell the product in New York.
Plaintiff’s argument would mean then that Dysarz retained a right to make, use, and sell
patented products at sea, while it granted Plaintiff an exclusive license to make, use, and
sell patented products on land. That plainly is not what the parties intended. Dysarz
retained its patent rights as to marine products (which it could exercise anywhere) and
granted Plaintiff a license to develop, sell, manufacture, and market non-marine
products, which Plaintiff could exercise anywhere. Indeed, section 1.02 grants Trendx a
worldwide scope to its licensed rights as Trendx itself recognizes. License Agmt, § 1.02;
Pl. Opp., at 9 (“[Trendx’s] exclusive license is without geographic restriction…”). This
section would have no effect if I were to interpret this agreement as a geographic license.
Further, the parties discuss their rights based on the type of product to be manufactured
or sold, not where the right will be enforced. For example, the Third Whereas Clause
reads, in part: “LICENSEE will not, however, use the Devices to manufacture, market,
and sell a fishing pole holder, boat cleats and stand-offs that are specifically of a marine
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nature.” License Agmt, at 1. And later, it discusses the products that are “the subject of
this agreement” and gives examples: torch holders, pole holders, and umbrella holders.
Id. § 1.03.
Trendx also cites Aspex Eyewear, Inc. v. Miracle Optics, Inc., 434 F.3d 1336 (Fed.
Cir. 2006), in support of its argument that it does have substantial rights. This citation
is somewhat baffling as it is a case holding that a licensee, who held even more rights
than Trendx, did not have substantial rights. There the Federal Circuit held that even
though the patent owner had licensed: “(1) the exclusive right to make, use, and sell
products covered by the patent; (2) the right to sue for infringement of the patent; and
(3) a virtually unrestricted authority to sublicense its rights under the agreement” it still
had not transferred all substantial rights and therefore it could bring suit in its own
name because the license term was only for a limited period of time. Id. at 1342.
Instead of assigning its rights by time, Dysarz did so by subject matter, and thus it
remained owner of its patents for the same reasons as were articulated in Aspex
Eyewear. Id. at 1343. Trendx additionally cites to Ciba-Geigy Corp. v. Alza Corp. and
Surgical Laser Technologies v. Laser Industries, to argue that Dysarz’s limited retention
of rights as to marine products does not undermine Trendx’s unrestricted use of the
patents. But in Ciba-Geigy, the patent owner retained rights only to the extent it
triggered a contract clause subject to a condition subsequent, which it never did. CibaGeigy Corp. v. Alza Corp., 804 F. Supp. 614, 631 (D.N.J. 1992). And in Surgical Laser,
the patent owner retained the rights only for a limited educational, non-commercial
purpose. Surgical Laser Technologies v. Laser Industries, No. 91-3068, 1991 U.S. Dist.
LEXIS 17191, at *7-9 (E.D. Pa Nov. 27, 1992). Neither factual situation applies here as
Dysarz always maintained a significant commercial interest in its patents. Furthermore,
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I find that the types of license agreements at issue in Int’l GamCo and A123 Sys are more
factually apposite to the agreement between Dysarz and Trendx.
ii. Trendx does not have substantial rights to the patents
Nevertheless, even if Trendx were correct and the license at issue is not a field-ofuse license, Trendx still does not have all substantial rights to the patents and therefore
cannot enforce the patents solely in its name. To determine whether a license
agreement has conveyed all substantial rights in a patent, a court must ascertain the
intention of the parties and examine the substance of what was granted. Prima Tek II,
222 F.3d at 1378. In making this assessment, it is necessary to determine both what
rights were granted and what rights were retained. Id.
A patent is a sanctioned monopoly and the essence of a patentee’s right is to
exclude others from making, using, or selling what is claimed. Vaupel, 944 F.2d at 875.
If the patent owner licenses this right of exclusion, in full, to another, then that party
may sue without joining the owner. See Prima Tek II, 222 F.3d at 1379-80 (“In
evaluating whether a particular license agreement transfers all substantial rights in a
patent to the licensee, we pay particular attention to whether the agreement conveys in
full the right to exclude others from making, using and selling the patented invention in
the exclusive territory.”); Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1552 (Fed.
Cir. 1995) (“To be an exclusive licensee for standing purposes, a party must have
received, not only the right to practice the invention within a given territory, but also the
patentee’s express or implied promise that others shall be excluded from practicing the
invention within that territory as well.”). Otherwise, the exclusive licensee must join the
patent owner. Textile Productions, Inc. v. Mead Corp., 134 F.3d 1481, 1483-84 (Fed. Cir.
1998) (“Thus, although a patentee has standing to sue in its own name, an exclusive
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licensee that does not have all substantial rights has standing to sue third parties only as
a co-plaintiff with the patentee.”).4
Notably absent from Trendx’s rights, even in its purportedly exclusive sphere of
nonmarine products, is the ability to exclude others from practicing the patent.
Whether a patentee has conveyed an exclusive right to sue is “particularly dispositive” in
determining if all substantial rights have been licensed to the patentee. Abbott Labs. v.
Diamedix Corp., 47 F.3d 1128, 1132 (Fed. Cir. 1995) (analyzing case law and finding the
question of whether the “exclusive right to sue for infringement” is “particularly
dispositive” of whether a party had obtained substantial rights). The license does not
explicitly grant Trendx an outright right to sue. Rather, it provides: “If there is any
claimed or apparent infringement of the patented Devices by any third party, whether
discovery of said claimed or apparent infringement is by LICENSEE or LICENSOR, both
parties agree they shall notify the other in writing within 15 days of receiving such
information at which time LICENSOR and LICENSEE agree to jointly discuss, assess
and determine an agreeable coarse [sic] of action that complies with the spirit and
intention of this License Agreement.” License Agmt, § 5.03. Contrary to Plaintiff’s
argument, this language does not convey an exclusive right to sue. All it requires is that
There is an exception to this, recognized long ago, that grants an exclusive licensee the
right to sue the patentee without joining the patentee as a plaintiff: “In equity, as at law,
when the transfer amounts to a license only, the title remains in the owner of the patent;
and suit must be brought in his name, and never in the name of the licensee alone,
unless that is necessary to prevent an absolute failure of justice, as where the patentee is
the infringer, and cannot sue himself.” Waterman, 138 U.S. at 255 (1891). Plaintiff cites
two District of New Jersey opinions that stand for this proposition and argue that
because it has the power to sue Dysarz it has substantial rights. Pl. Opp., at 7 (citing
Novartis Pharms Corp. v. Teva Pharms. USA, Inc., No. 05-1887, 2009 WL 3447232
(D.N.J. Oct. 4, 2009); Sanofi, S.A. v. Med-Tech Veterinarian Products, Inc., 565 F. Supp.
931 (D.N.J. 1983)). But of course Trendx is not trying to sue Dysarz. If it were, a
different result might be warranted. And that result would have no bearing on whether
Trendx has the exclusive right to sue third parties.
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the parties discuss any possible or pending infringement actions. Dysarz retains its
right to sue unless the agreement provides otherwise. See Textile Prod., 134 F.3d at
1485 (finding that patentee retained right to license to third parties when agreement
was silent on the subject).
Moreover, I must consider not only whether Trendx had the power to sue, but
also whether the agreement “divests the licensor of that same right.” See Delano Farms
Co. v. Cal. Table Grape Comm’n, 655 F.3d 1337, 1342 (Fed. Cir. 2011). Even if Dysarz
envisioned Trendx being able to initiate a lawsuit, the agreement does not preclude
Dysarz from doing the same. See IpVenture, Inc. v. ProStar Computer, Inc., 503 F.3d
1324, 1325 (Fed. Cir. 2007) (“Thus all entities with an independent right to enforce the
patent are indispensable or necessary parties to an infringement suit.”). Dysarz’s
independent power to bring suit is evidenced by its lawsuit against Rio Brands in 2008.
Even in the face of Dysarz’s independent enforcement actions, Trendx does not allege or
argue that Dysarz breached its license agreement. In fact, Trendx points to Dysarz’s
statements that the license agreement was “still in full force” even in light of Dysarz’s
lawsuit. Compl., ¶ 31. Thus, Dysarz’s continuing right to enforce its patents accords
with Dysarz and Trendx’s agreement.
Trendx also argues that because it had an exclusive right to sublicense the
patents-in-suit, it could nullify any attempt by Dysarz to sue an alleged infringer by
sublicening that party, thereby rendering any retained right-to-sue by Dysarz illusory.
Trendx relies on the Federal Circuit’s language in Speedplay, Inc. for support. There the
court said that the patentees’ “right to sue an infringer if Speedplay does not is illusory,
because Speedplay can render that right nugatory by granting the alleged infringer a
royalty-free sublicense.” Speedplay, Inc., 211 F.3d at 1251. But the court’s discussion
16
was in the context of a license agreement that explicitly granted Speedplay the sole right
to enforce the patents. Id. And the patentees’ retained right to sue was triggered if
Speedplay failed to take action for three months; only then could the patentees sue in
their own name. Id. Here Trendx does not have the sole right to enforce the patents
and the license agreement appears to forestall any situation where Trendx could render
Dysarz’s right illusory because it requires the parties to discuss any infringement action
beforehand. See License Agmt, § 5.03. Nor am I convinced that Trendx actually has an
exclusive unfettered right to sublicense the patents, as did Speedplay. The Trendx
agreement only provides: “Whereas LICENSEE may desire to sublicense others…to
maximize the patents potential and/or compliment [sic] its existing product line that are
not specifically of a marine nature, LICENSEE agrees to supply LICENSOR with a letter
that states the material elements of any executed agreement with a SUBLICENSEE…”
License Agmt, § 1.03. And in the subsequent section, the parties agree that Dysarz will
not contact any party that Trendx is in negotiations with as this is best to “obtain the
best prices and highest royalties.” Id. § 1.04. This suggests that Dysarz was free to enter
into negotiations with any company not negotiating with Trendx and also that it
retained a right to sublicense its patents. This language also suggests that the parties
were not contemplating royalty-free sublicenses, another significant distinction from the
facts presented in Speedplay, Inc. Similarly, Trendx relies on Ciba-Geigy Corp., but
there too, the court found the licensor had granted the licensee “the sole right” to
enforce the patent at issue. Ciba-Geigy Corp., 804 F. Supp. at 631 (“[T]his agreement
granted the licensee the sole right to sue for past present and future infringement.”)
(emphasis added). Such a clear granting of an exclusive right is lacking in Trendx’s
agreement with Dysarz.
17
Nor does the fact Dysarz and Trendx labeled their agreement as an “exclusive
license” actually give Trendx exclusive rights to the patent. “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.”
Waterman, 138 U.S. at 256; Vaupel, 944 F.2d at 875 (“[T]he use of the term ‘exclusive
license’ in the [transfer agreements] is not dispositive; what the documents in fact recite
is dispositive.”). Here the legal effect of the license was not to give Trendx an exclusive
right to exclude others from making, using, or selling the patented technology. Rather,
it was a grant from Dysarz to Trendx of the right to develop, sell, manufacture, and
market the patented technology as related to nonmarine products only, at most a shared
right to enforce the patents with Dysarz, and a circumscribed right to sublicense. These
rights cannot be said to be substantial and do not transform Trendx into either a virtual
assignee or the de facto owner of the patents-in-suit. Therefore, Dysarz must be joined
as a party if Trendx is to maintain its claim of patent infringement.
b. Dismissal of Trendx’s Patent Claims
Trendx argues that if I find that Dysarz is a necessary party, then Trendx should
be granted leave to amend rather than having Count I dismissed. Pl. Opp., at 15. Rio
Brands disagrees. Def. Reply, at 7. Other courts that have addressed this issue have
found themselves compelled to dismiss the claims because the Federal Circuit has said
that it is necessary to join the patentee before initiating the lawsuit:
Significantly, in Int’l Gamco, the federal circuit reversed the district court’s
denial of the defendant's motion to dismiss. It held that the motion to
dismiss should be granted since the plaintiff, a holder of only an exclusive,
field of use license with a geographical limitation, lacked standing to sue
on its own. Rather, joinder of the patent owner prior to institution of the
action was mandated.
18
Road Sci., L.L.C. v. Cont’l Western Transp. Co., No. 09-2023, 2009 U.S. Dist. LEXIS
122262, at *13-14 (E.D. Cal. Dec. 14, 2009); see also Univ. of Pittsburgh v. Varian Med.
Sys., No. 07-0491, 2008 U.S. Dist. LEXIS 36098, at *7-8 (W.D. Pa. Apr. 30, 2008)
(analyzing the same language and dismissing Plaintiff’s action because it did not join a
necessary party before initiating its action), vacated on other grounds by 569 F.3d 1328,
1334 (Fed. Cir. 2009).5 I need not decide whether or not International Gamco demands
that I dismiss or not. It is within my discretion to either dismiss or allow an amendment
to substitute parties. Ricci v. State Bd. of Law Examiners, 569 F.2d 782, 784 (3d Cir.
1978). Nevertheless, “when a complaint is vulnerable to dismissal on the pleadings, a
district court must permit a curative amendment, unless an amendment would be
inequitable or futile.” Andela v. Am. Ass'n for Cancer Research, 389 Fed. Appx. 137 (3d
Cir. 2010), citing Phillips v. Cty. of Allegheny, 515 F.3d 224, 236 (3d Cir. 2008).
Therefore, Count I of Plaintiff’s Complaint is DISMISSED WITHOUT PREJUDICE;
Trendx may cure its lack of standing by making a motion to amend to add Dysarz as a
party.6
The Federal Circuit vacated the district court’s decision because its dismissal was with
prejudice, but it left undisturbed the determination that dismissal was appropriate for
failure to join the patent holder.
5
Because I am dismissing Trendx’s patent claim, I need not decide what effect, if any,
Dysarz’s settlement agreement with Rio Brands has on Trendx’s ability to sue on the
Settled Patents. Nevertheless, I briefly comment on this issue to provide some guidance
to the parties should Trendx choose to refile its patent claim. I am skeptical that Trendx
would be allowed to maintain an action against Rio Brands on patents for which Rio
Brands has already litigated and paid money in settlement to Dysarz. The paramount
concern underlying the Supreme Court’s holding in Independent Wireless was to
alleviate the threat of an alleged infringer being subjected to duplicative lawsuits: “The
presence of the owner of the patent as a party is indispensable not only to give
jurisdiction under the patent laws but also, 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
6
19
IV.
CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss is GRANTED. An
order will be entered consistent with this Opinion.
Dated: April 18, 2012
/s/ Freda L. Wolfson
Honorable Freda L. Wolfson
United States District Judge
subsequent actions.” Independent Wireless, 269 U.S. at 468 (emphasis added).
Plaintiff argues that such a concern is illusory here because Dysarz’s rights have already
been adjudicated and therefore Dysarz will not again sue Rio Brands. But it is not the
specter of a hypothetical, future lawsuit by Dysarz that is cause for concern – it is
Trendx’s current action that makes the threat of duplicative litigation manifest. To
allow Trendx the opportunity to relitigate the same patents seems to run afoul of the
Supreme Court’s and the Federal Circuit’s prudential standing concerns.
Moreover, beyond these equitable concerns, Rio Brands appears to have an afteracquired license to the ’016 patent. The Patent Act states: “An assignment, grant or
conveyance shall be void as against any subsequent purchaser or mortgagee for a
valuable consideration, without notice, unless it is recorded in the Patent and
Trademark Office within three months from its date or prior to the date of such
subsequent purchase or mortgage.” 35 U.S.C. § 261; Heidelberg Harris, Inc. v. Loebach,
145 F.3d 1454, 1456 (Fed. Cir. 1998) (“[The defendant was] a bona fide purchaser of a
license under the asserted patent and therefore is not subject to suit for infringement of
the patent.”). And while Dysarz did not license the two other Settled Patents, (the’234
patent and the ’163 patent) – instead covenanting not to sue Rio Brands on those
patents – some courts have found privity between a patent holder and a licensee when
the patent holder has already sued on licensed patents, thereby binding the licensee to
the patent holder’s lawsuit. Erbamont, Inc. v. Cetus Corp., 720 F. Supp. 387, 394-395
(D. Del. 1989) (“There is a strong possibility that both the Erbamont-Farmitalia and
Erbamont-Erbamont N.V. relationships fall within this definition because both
Farmitalia, by its license agreement, and Erbamont N.V., by its representations to
defendants, claim a concurrent interest in the ’124 patent.”); Arcade, Inc. v. 3M, No. 960359, 1997 U.S. Dist. LEXIS 21687, at *22 (E.D. Tenn. June 10, 1997) (“BBCo is in
privity with Arcade by virtue of their exclusive licensing agreement.”); see also Gardiner
v. Virgin Islands Water & Power Authority, 145 F.3d 635, 642 (3d Cir. 1998) (“[P]arties
in privity are bound by rulings made in their absence”). In other words, Trendx might
be considered a virtual party should Rio Brands raise an issue of res judicata. But as
Trendx correctly notes, the settlement between Dysarz and Rio Brands did not involve
the ’191 patent, so these concerns would have no bearing should Trendx join Dysarz and
bring an action for infringement based on that patent alone.
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