Does Ability To License Or Assign A Patent Affect Right To Sue?

Writing in PatentlyO, Dennis Crouch says the Federal Circuit’s May decision in Intellectual Tech LLC v. Zebra Techs. Corp. offers some interesting insight into the effect of a lender’s ability to license or assign a patent on the patent owner’s standing to sue for infringement, especially after default.

The patent at issue was previously owned by a company that defaulted after granting a security interest in the patent to Main Street Capital Corporation as part of a loan agreement. Upon default, the company assigned the patent to its subsidiary, Intellectual Tech LLC (IT), which entered into its own security agreement with Main Street similar to the previous agreement.

When IT later defaulted, Main Street’s rights in the patent became a central issue in determining whether IT retained sufficient exclusionary rights to have constitutional standing to sue for infringement without also joining Main Street.

IT sued Zebra for infringement, but a Texas district court dismissed the case, ruling that IT lacked constitutional standing to sue for infringement because it had not joined the owners, including Main Street, as co-plaintiffs. It found that although Main Street hadn’t exercised its rights to license or assign the patent, the possibility that Zebra could obtain a license from Main Street deprived IT of exclusionary rights in the patent, which are necessary for constitutional standing.

The Federal Circuit reversed, characterizing Main Street’s rights as an “unexercised option.” The opinion concluded that “Main Street’s default rights under the patent and trademark security agreement did not deprive IT of all exclusionary rights. Thus, the district court incorrectly determined that IT could not demonstrate that infringement of the patent amounted to an injury in fact.”

Crouch calls the outcome “somewhat unsatisfying.” He argues that he finds it difficult to discern the difference between a post-default secured creditor who can take various actions at their ‘option’ as compared with a co-owner of the patent who can also take those same actions, and analyzes the case from that perspective.