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Assignment Without Substantial Rights Bars Patent Lawsuit

The Plaintiff lacked standing to bring suit and the patent infringement lawsuit was dismissed, since the patent assignment did not convey all of the substantial rights in the patents to the purported patent owner Diamond. In Diamond Coating Techs, LLC v. Federal-Mogul Corp., Appeal Nos. 2015-1844-1861 (Fed. Cir. May 17, 2016)(Guthrie Healthcare System v. ContextMedia, Inc. (2nd Cir. 2016) Available Here), the Federal Circuit Court of Appeals held that assignee Diamond Coating Tech, LLC (herein “Diamond”) is not legally “a patentee” under 35 U.S.C. § 281 and did not have standing to sue for patent infringement, because the assignment agreement did not convey all of the substantial rights in the patents to Diamond.

Diamond sued Hyundai Motors America, et al. (Appellees”) in the Central District of California alleging patent infringement. The District Court dismissed the action because it found the agreements between Diamond and Sanyo, the original patent owner – assignee of the patents in suit, did not confer patentee status on Diamond, therefore Diamond could not sue Appellees without joining Sanyo. The District Court also held that nunc pro tunc agreements executed by Diamond and Sanyo after the Court’s decision did not affect its determination. The Federal Circuit affirmed the District Courts decisions.

The determination of standing turned on whether Diamond had acquired all substantial rights in the patents-in-suit or, instead, whether Sanyo retained substantial rights. Only a “patentee” shall have remedy by civil action for infringement of his patent. 35 U.S.C. § 281. An assignment of patent rights operates to transfer title to the patent, while a license leaves title in the patent owner and transfers something less than full title and rights.

At the time of suit, Diamond did not have all substantial right in the patents. The Federal Circuit focused its inquiry on the Agreement and its scope regarding: (1) the exclusive right to make, use and sell (… a vitally important element) and (2) the nature and scope of the patentee’s retained right to sue accused infringers and license the patent. These two factors are most important in determining whether an agreement transfers sufficient rights to render the licensee/buyer/party the owner of the patent for purposes of bringing suit.

First, the Agreement did not permit Diamond sufficient rights to make, use or sell the patented invention. Sanyo retained a limited right to make, use, distribute … products covered by the patents and this indicated that the licensee failed to acquire all substantial rights. See Fieldturf, Inc. v. SW. Recreational Indus., Inc., 357 F.3d 1266. 1269 (Fed. Cir. 2004).

Second, Sanyo retained significant control over Diamond’s enforcement and litigation activities. The Agreement conditioned Diamond’s enforcement activities on Sanyo’s best interests. The Agreement also prohibited Diamond from licensing the patents jointly with patents owned by another party absent Sanyo’s prior written consent. The Agreement further limited Diamond’s discretion to sue, by listing companies that Diamond reserved the right not to assert the patent against. The Federal Circuit held that the Agreement did not convey all of the substantial rights in the patents to Diamond, therefore Diamond is not a “patentee” under 35 U.S.C. § 281 and did not have standing to sue.

Nunc pro tunc assignments are used when a buyer-licensee seeks to confirm rights granted to another party at an earlier time than the parties sign the nunc pro tunc assignment document. The nunc pro tunc assignments in the Diamond case were not sufficient to confer retroactive patent status pursuant to precedential case law. Alps South, LLC v. Ohio Willow Wood Co., 787 F.3d 1379, 1384 (Fed. Cir. 2015).

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