June 10, 2014
The Court of Appeals for the Federal Circuit issued two opinions last week relating to standing, both resulting in further restrictions on access to the Federal Courts, albeit in quite different contexts.
Consumer Watchdog v. Wisconsin Alumni Research Foundation addressed an appeal from a pre-AIA inter partes reexamination in the U.S. Patent & Trademark Office (USPTO). Consumer Watchdog, the appellant, is a self-styled “not-for-profit public charity dedicated to providing a voice for taxpayers and consumers in special interest-dominated public discourse, government and politics.” Professing concerns with a Wisconsin Alumni Research Foundation (WARF) patent directed to human embryonic stem cell cultures, Consumer Watchdog sought to invalidate the patent via reexamination. After losing at the USPTO, Consumer Watchdog filed an appeal with the Federal Circuit.
The Federal Circuit held that Consumer Watchdog lacked standing to bring the appeal. Consumer Watchdog is not engaged in research or commercial activities and is not a competitor to WARF. The court indicated that to meet the minimum standing requirements under Article III of the U.S. Constitution as set forth in the seminal case of Lujan v. Defenders of Wildlife, Consumer Watchdog would have to demonstrate (1) an injury in fact that is concrete and particularized as well as actual and imminent, (2) that the injury is fairly traceable to the challenged action, and (3) that it is likely that a favorable judicial decision will redress the injury.
Based on the Lujan standard, the court observed that the only injury Consumer Watchdog asserted was the Patent Trial and Appeal Board’s denial of their desired outcome during reexamination. The court then determined that the procedural right to participate in an administrative proceeding in the USPTO reexamination did not by itself satisfy constitutional standing limitations in a post-examination action in an Article III court.
With further reference to an earlier Supreme Court case, Hollingsworth v. Perry, the court concluded that Consumer Watchdog was not an actual or prospective licensee, nor did it have any other connection to the ’913 patent or the claimed subject matter. Reasoning that the U.S. code could not trump the Article III requirements for standing, the court further concluded that the estoppel effect created by the inter partes reexamination statute was insufficient to justify standing, since Consumer Watchdog established at most that it had only a “general grievance against the ’913 patent,” not a direct “personal” interest in the outcome.
Irrespective of one’s views of patent challenges brought by self-proclaimed “public interest” groups that seek to indirectly promote the political or social views of their unnamed financiers, the Consumer Watchdog decision could raise more-general procedural issues in future cases. Although it should be emphasized that this was a pre-AIA proceeding, the upshot of the Consumer Watchdog holding is that while essentially anyone can lodge a patent challenge before the USPTO, not everyone can appeal to an Article III court from an adverse USPTO decision. The consequences of this holding may be narrow, but are not entirely clear. For example, a parent corporation that holds its portfolio of patents in the name of subsidiaries may have the ability to commence an inter partes reexamination, but could be argued to lack standing to appeal an adverse outcome in the courts. Corporate formalities including who are proper parties are clearly important matters that may be addressed in advance both in legal documentation and in strategic planning of administrative and litigation attacks on patents of concern.
The importance of careful documentation of formalities relating to standing are illustrated in last week’s other notable decision. A day after Consumer Watchdog, the Federal Circuit issued its opinion in STC.UNM v. Intel Corporation. In that case, the court restricted the ability of one co-owner to sue for patent infringement without joinder of a co-owner. The background facts were attenuated, and the history of inventorship and ownership of related patents were extremely garbled, a substantial factor in the ultimate result. Four inventors had contributed inventively to the original patent (“the ’321 patent”) and to the patent in suit, (“the ’998 patent”), a continuation-in-part. Three of the inventors were employees of the University of New Mexico (“UNM”), and the fourth was an employee of Sandia, a laboratory owned by the United States and operated by UNM under contract. The four inventors all executed assignments to UNM. The parties later determined that this was a mistake, and executed a partial assignment to Sandia to correct their error. This apparently left Sandia and UNM as co-owners of the patent, although Sandia consistently asserted that it had no ownership interest in either patent.
Two of the UNM inventors continued their research and applied for a second patent directed to their new findings. During prosecution of this new application, UNM filed a terminal disclaimer over the first patent, stipulating that any patent granted on the second patent would be enforceable only for the period that the two patents were commonly owned. UNM later assigned its rights in the new application to STC, a wholly owned licensing arm of UNM, and the’998 patent ultimately issued as a continuation in part of the ’321. Later, STM, as exclusive licensee, brought suit against Intel for infringement of the ’998.
At the district court, Intel asserted that the second patent was unenforceable because it was not commonly owned with the first, as ostensibly required by the terms of the terminal disclaimer. In response, STM executed an assignment of an undivided interest in the ’998 continuation patent to Sandia. But Sandia had never claimed an ownership interest in the ’998 patent, and still refused to join voluntarily as a plaintiff.
Intel then moved to dismiss on the grounds that Sandia, which Intel claimed (and Sandia denied) was a co-owner of the patent, was a necessary party but was not joined as a plaintiff in the case. Relying on an earlier Federal Circuit case, Ethicon, Inc. v. United States Surgical Corp., the district court granted the motion. The district court refused to join Sandia as an involuntary party under Rule of Civil Procedure 19(a), reasoning that, under Ethicon, a co-owner ordinarily has the substantive right to impede another co-owner’s infringement action by refusing to voluntarily join the suit. The district court further refused to apply an equitable exception to the rule that all owners must join. “Rules of procedure,” the court held, “such as that in Rule 19(a), must give way to substantive patent rights.”
The court explicitly held “[t]o remove any doubt, this court holds that the right of a patent co-owner to impede an infringement suit brought by another co-owner is a substantive right that trumps the procedural rule for involuntary joinder under Rule 19(a).” There are two recognized exceptions: First, when suit is brought by an exclusive licensee, the patent owner may be joined involuntarily. Second, a co-owner may waive the right to refuse to join in the lawsuit (unlike Sandia, which had not waived the right, but affirmatively refused to join), and in that case the remaining co-owner may maintain the lawsuit. The court thus affirmed the district court’s dismissal of the case.
Judge Newman dissented. In her view, “[w]hen a party declines voluntarily to join in a legal action for which it is deemed necessary, involuntary joinder is provided by Federal Rule 19.”
This STC.UNM decision should increase awareness of the importance of careful drafting of instruments creating and devising legal interests in patents, whether in the nature of licenses, assignments, or other such documents that can have decisive effect on the ability to enforce. STC.UNM appears to resolve one such issue, by reiterating that absent an affirmative contractual duty to do so, a co-owner may thwart the desire of its co-owner to bring infringement litigation. Other open questions linger. For instance, if co-owners are contractually obligated to join in any lawsuit, but one co-owner nevertheless refuses to join in an enforcement lawsuit notwithstanding the contractual obligation, will the Federal Circuit apply STC.UNM to deny standing? Or will the court follow Judge Newman’s suggestion that Rule 19 permits involuntary joinder in such case? If the court denies standing, what is the remedy for the aggrieved co-owner— perhaps a breach of contract case in state court? These questions remain for another day.
Still other questions remain. One fundamental question is whether the STM.UMN decision reduces the value of patent rights. The import of the decision is that Intel effectively has royalty-free license. Some may find this decision difficult to reconcile with the court’s stated rationale that “[r]ules of procedure, such as that in Rule 19(a), must give way to substantive patent rights.” One must query from where Intel’s alleged “substantive patent right” ultimately derives, other than from the court’s non-statutory holding. Future courts may wrestle with how to evaluate this holding against the congressional establishment of civil actions for infringement and of the doctrine of compulsory joinder of unwilling plaintiffs under Rule 19 of the Federal Rules of Civil Procedure.
Notably, both of the above cases conclude with holdings that limit access to or remedies available in the federal courts. This keeps the Federal Circuit in step with a long-term trend of decisions interpreting the scope of federal court jurisdiction narrowly and limiting plaintiffs’ federal judicial rights in matters also affecting state interests or interests protectable in federal agencies, a trend that can be traced through the conservative Rehnquist and Roberts eras in the Supreme Court.
If you have questions concerning the Consumer Watchdog or STC.UNM cases, please contact Fitch Even partner Steven C. Schroer or attorney Jonathan C. Hughley, the authors of this alert.
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