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Federal Circuit Clarifies Standard For The Injury In Fact Requirement For Standing
05/07/2024On May 1, 2024, the Court of Appeals for the Federal Circuit (“CAFC”) issued a precedential opinion reversing a decision from the United States District Court for the Western District of Texas in Case No. 2 6:19-cv-00628-ADA, Judge Alan D. Albright, granting dismissal for lack of constitutional standing. Intellectual Tech LLC v. Zebra Technologies Corp., __ F.3d __ (Fed. Cir. May 1, 2024). In its decision, the CAFC found that plaintiff patentee retained an exclusionary right under the asserted patent and that this was sufficient to establish standing.
In 2019, appellant Intellectual Tech (“IT”) filed a complaint against Zebra for infringement of the ‘247 patent. Zebra moved for summary judgment of no subject-matter jurisdiction based on IT’s purported lack of constitutional and statutory standing based on the following facts.
Prior to the suit, in 2011, IT’s parent, OnAsset, had granted a security interest in its patents—including the ‘247 patent, which was assigned to OnAsset at the time—to the lender, Main Street, pursuant to loan and security agreements. The terms of these agreements gave Main Street certain rights that it could exercise upon OnAsset’s default of the loan. In 2013, OnAsset defaulted. Subsequently, in 2017, OnAsset and Main Street entered into a forbearance agreement. At the same time, IT was formed as OnAsset’s subsidiary, and OnAsset assigned the ‘247 patent to IT. In turn, IT entered into its own security agreement with Main Street, granting Main Street a security interest in the ‘247 patent and granting Main Street the same default rights contained in its earlier security agreement with OnAsset. In 2018, IT defaulted as well.
Appellee Zebra’s motion for summary judgment for lack of subject-matter jurisdiction primarily relied on the ground that OnAsset’s initial default in 2013 triggered an immediate transfer of exclusionary rights to Main Street such that OnAsset had no exclusionary rights to assign IT upon its formation in 2017.
The district court rejected this primary argument, concluding that the default gave Main Street the right “to enforce, ‘sell, assign, transfer, pledge, encumber or otherwise dispose of’ the ‘247 patent,” but it did not “automatically divest OnAsset of title to the ‘247 patent.”
Nonetheless, the district court granted Zebra’s motion as to constitutional standing because, in its view, the fact that “Zebra could obtain a license on the [‘247] patent from Main Street” deprived IT of all its exclusionary rights. The district court also denied IT’s request to cure any defects in standing as the defect existed at the time of filing and was therefore incurable. In view of its decision on constitutional standing, the district court found it unnecessary to reach Zebra’s statutory standing arguments. IT appealed.
On appeal, the CAFC explained that the only issue in dispute related to the “injury in fact” requirement for constitutional standing, which requires a showing that IT retained an exclusionary right—i.e., that infringement would amount to an invasion of IT’s legally protected interest. The CAFC concluded it did. In particular, the CAFC concluded that, under the controlling security agreement, Main Street’s and IT’s shared ability to license while a default existed did not divest IT, the patent owner, of all exclusionary rights.
In reaching its decision, CAFC distinguished its earlier decision in WiAV Sols. LLC v. Motorola, Inc., 631 F.3d 1257 (Fed. Cir. 2010), which the district court relied on to support the conclusion that Main Street’s non-exclusive ability to license stripped IT of all exclusionary rights. As explained by the CAFC, the court in WiAV was asked whether the plaintiff was an exclusive licensee (an entity that received an exclusionary right as part of a license) or a bare licensee (an entity that received only “a promise from the patentee that the patentee will not sue the licensee for practicing the patented invention”). The CAFC pointed out that the licensee rights analysis in WiAV was not analogous to the patentee rights analysis in the present case. A patent owner has exclusionary rights as a baseline matter unless it has transferred all exclusionary rights away. In contrast, a licensee ordinarily obtains freedom from suit but does not necessarily obtain an interest in preventing others from practicing the patent. So, while a non-exclusivelicensee may not possess an exclusionary right, a patentee that retains a non-exclusive ability to license does retain an exclusionary right.
The CAFC also decided that the district court incorrectly concluded that Main Street’s option to assign upon IT’s default presently divested IT of all other legal interests in the ‘247 patent. The CAFC explained that the exclusionary rights that IT would have lost upon Main Street’s foreclosure or assignment to another party must be evaluated based on the actual state of rights instead of their hypothetical redistribution at some unspecified point in the future. Because Main Street did not exercise this option, IT had not been divested of all exclusionary rights.
Accordingly, the CAFC reversed the district court’s decision granting dismissal and remanded.
