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Propat International Corp., et al. v. Rpost, Inc., et al.

Posted in Opinion Commentary by Jake Ward on January 4, 2007

A Patentee May Effect a Transfer of Ownership for Standing Purposes by Conveying All Substantial Rights in a Patent.

(Fed. Cir. 2007, 06-1222)

 Propat

On appeal from district court (C.D. Cal.), the CAFC was asked whether Propat had a sufficient ownership interest in U.S. Patent No. 6,182,219 (“the ’219 patent”) to be entitled to sue Rpost for infringement?  In this “patent standing” case, the CAFC affirmed the holding of the district court that Propat does not have standing to sue.

The technology at issue relates to an apparatus and method for authenticating that a sender has sent certain information via a dispatcher to a recipient.  Propat had an agreement with the patentee Authentix.  The issue was whether Authentix had transferred to Propat all substantial rights in the ‘219 patent in this agreement?

The agreement between Propat and Authentix gave Propat the responsibility to license the patent to third parties, to enforce the licensing agreements, and to sue infringers. In exchange, the agreement gave Propat a defined percentage share of the proceeds of the licensing royalties and of any judgment or settlement arising out of litigation. As part of the agreement, Propat undertook “to consult with and obtain prior approval” from Authentix for the selection of any potential targets for licensing or suit, although the agreement provides that Authentix may not unreasonably withhold or delay such approval. The agreement further provides that Authentix can terminate the agreement if Propat breaches the agreement, becomes bankrupt or insolvent, fails to obtain certain levels of income from the patent, or ceases to be actively engaged in licensing or litigation efforts. Propat was forbade from assigning its rights and obligations under the agreement without the consent of Authentix, which consent Authentix may freely withhold.  Notably, the agreement was silent as to Propat’s rights to practice the patent, whether exclusively or otherwise, and focused instead on Propat’s rights to license the patent and sue for its infringement.

The CAFC held that Authentix retained sufficient rights in the patent that it cannot be said to have assigned “all substantial rights” in the patent to Propat.  Authentix is, and will continue to be, the owner of the patent.  Authentix retained the responsibility to maintain the patent (a recognized indication that a party has retained an ownership interest), as well as retained an economic interest in the patent and a substantial measure of control over decisions affecting the patent rights.  Authentix further retained a right to arbitrarily veto any transfer of Propat’s rights under the agreement, and was free to terminate the contract if Propat fails to meet certain requirements.  Thus, Propat had no standing to sue in relation to the ‘219 patent.

Notably, a “right to sue” clause was present in the agreement.  However, the CAFC notes taht a “right to sue” clause in a contract, unaccompanied by the transfer of other incidents of ownership, does not constitute an assignment of the patent rights that entitles the transferee to sue in its own name.

Affirmed.

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