No Standing Found for "Enforcement-Only" Agreement

Propat Int'l Corp. v. Fink (2006-1222) - January 4, 2007

In another "patent standing" case, plaintiff Propat agreed with patent owner Authentix to license, enforce and sue infringers of Authentix's patent. In exchange, Propat would receive a percentage share of any proceeds. The lower court found that Propat lacked standing to sue, since "all substantial rights" were not transferred under the agreement.

The CAFC affirmed, finding that the agreement expressly provided that Authentix is the owner of the patent. Moreover, the agreement provided that Authentix was responsible to maintain any patents it owns or controls, which included the patent at issue. In addition, Authentix retained an economic interest in the patent and a substantial measure of control over decisions affecting the patent rights, including a right to notice of licensing and litigation decisions and the right to veto such decisions, as well as the unrestricted power to bar Propat from transferring its interest in the patent to a third party.

The CAFC also found that Propat has no standing even if Authentix was named as a co-plaintiff. The court noted that, under the agreement, Propat wasn't an exclusive licensee, but wasn't a "bare licensee" either. Relying on the Supreme Court's opinion in Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24 (1923), the CAFC found that the restrictions placed on Propat under the agreement vitiated standing:

In this case, Propat lacks important indicia of a true ownership interest in the patent, such as the right to transfer its interest. Under the May 2002 agreement, Propat is not allowed to assign its interests under the agreement without Authentix's consent, which can be withheld on any ground. Moreover, as noted, Propat must provide Authentix with notice and obtain Authentix's consent to its selection of targets for licensing and suit. And the agreement requires Propat to "use reasonable efforts consistent with prudent business practices" in its licensing and enforcement efforts, a provision that is more consistent with the status of an agent than a co-owner. We therefore agree with the district court that Propat's rights created by the May 2002 agreement did not accord it rights in the patent sufficient to give it standing to sue, even with Authentix named as a co-plaintiff. Accordingly, we uphold the district court's decision dismissing Propat's action without prejudice for lack of jurisdiction.