No Patent? No Problem! The Federal Circuit Paves The Way For Non-Patent Owners To Sue Infringers
For decades, the U.S. Court of Appeals for the Federal Circuit has held that a patent litigation cannot go forward without all patent owners as plaintiffs.1 The Court consistently and explicitly framed this issue as one of standing: “Absent the voluntary joinder of all co-owners of a patent, a patent owner acting alone will lack standing.”2 The framing of the issue as one of standing made the failure to join all co-owners a jurisdictional one. When there is no standing, a court cannot hear a case, and the remedy is not a decision on the merits, but an outright dismissal.3 As the Federal Circuit has stated, “[b]ecause standing is jurisdictional, lack of standing precludes a ruling on the merits.”4 And, because it is jurisdictional, a court always has an independent obligation to assure standing, even when raised for the first time on appeal (and even when raised for the first time in the Supreme Court).5
In 2019, in Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., the Federal Circuit revisited the framing of the issue as one of standing, and in light of a then-recent Supreme Court case, overturned its prior precedent and announced a new rule that failure to join a patent owner is a defense on the merits, not a jurisdictional standing issue.6 Even then, however, the Federal Circuit announced the result of failing to join the patent owner to the lawsuit—the case was to be dismissed.7
On October 7, 2020, the U.S. Court of Appeals for the Federal Circuit went a step further. Accepting that lack of joinder is no longer a jurisdictional standing issue, but is now to be treated as an affirmative defense, the Court followed that logic to its procedural extreme, holding for the first time that a case could go forward without the patent owner as plaintiff if the defendant waived its defense. In AntennaSys, Inc. v. AQYR Technologies, Inc., No. 19-2244, 2020 WL 5927398 (Fed. Cir. Oct. 7, 2020), a case in which only one of two co-owners of the patent sued, the Court stated, “this is not an issue of a lack of subject matter jurisdiction—a defense that may be considered at any point in the proceeding.”8 Instead, “motions to dismiss based on ‘statutory standing’ defects are properly brought under Rule 12(b)(6) rather than Rule 12(b)(1) in recognition of the fact that such defects are not jurisdictional” and “such a defense may not be presented for the first time on appeal absent ‘unusual circumstances.’”9 Ultimately, the Court remanded the case to the district court to determine whether the defendants’ objections had been waived.10 The implication of that remand is straightforward—if the objection had been waived, the case would go forward without all co-owners.
The implications of this step are broad, substantial, and potentially dangerous for patent holders. As explained below, the Federal Circuit’s broad statement, if taken literally (and there’s no reason not to) would allow even a non-exclusive licensee to sue for patent infringement, so long as the defense of standing were never raised.
AntennaSys presented a curious fact pattern, even though the Federal Circuit’s holding turned out to be very straightforward. AntennaSys concerned a patent co-owned by AntennaSys, Inc. (Plaintiff) and Windmill International, Inc. (Defendant).11
After AntennaSys and Windmill were each assigned one-half interests in the patent by their respective employees, the companies entered into an agreement whereby Windmill received an exclusive license to AntennaSys’s one-half interest in the patent in U.S. government sales and U.S. commercial sales and, in exchange, Windmill agreed to pay AntennaSys three percent of the gross sales.12 The agreement also stipulated that Windmill create and own an LLC that would own both Windmill’s own interest in the patent and Windmill’s license to AntennaSys’s interest in the patent.13 Windmill’s subsequent failure to meet certain minimum sales requirements, per the agreement, meant that its exclusive license to AntennaSys’s interest became non-exclusive.14
AntennaSys’s amended complaint alleged infringement of said patent by AQYR Technologies, Inc. (Windmill’s wholly owned subsidiary) and also contained five state law counts against Windmill, AQYR, or both.15 Following an unfavorable claim construction, and presumably motivated by a desire to moot AQYR’s affirmative defenses of invalidity and unenforceability of the patent, AntennaSys moved for summary judgment of non-infringement, which the district court granted.16 AntennaSys filed a timely appeal.17 Although AntennaSys presented the case as a claim construction issue, the Court agreed with Defendants that two threshold issues must be resolved first: (i) whether Windmill needed to be joined, and (ii) whether AQYR was authorized by Windmill to practice the patent.18
After faulting the parties for neglecting to identify the failure to join the co-owner more clearly (either for the Federal Circuit or the district court in the first instance), the Federal Circuit turned to that threshold legal issue. Here, the Court redefined its jurisprudence on co-owner standing as one that could no longer survive the Supreme Court’s decision in Lexmark Int’l Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014). According to the Federal Circuit, “following the Supreme Court’s guidance in Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118, 128 n.4 (2014), it is improper to discuss requirements for establishing a statutory cause of action in terms of ‘standing.’”19 The Federal Circuit then turned to its earlier decision in Lone Star as pronouncing a new rule that failure to join a patent owner is, post-Lexmark, not a jurisdictional standing issue.20
While the Federal Circuit may have already shown its hand in Lone Star, that case presented a different scenario and one for which AntennaSys was not necessarily a foregone conclusion. In Lone Star, the plaintiff was an exclusive licensee who alleged it had all “substantial rights” and therefore the patent owner did not need to be joined.21 Ultimately, the Federal Circuit remanded the case to determine if the patent owner needed to be joined under Rule 19 (the rule requiring joinder of indispensable parties).22 In Lone Star, the party asserting the patent alleged itself to have all the rights of ownership; it was only after it was determined its exclusive license was insufficient that the district court (and later, Federal Circuit) instructed that the patent holder needed to be joined. In that case, therefore, it hardly mattered if the defect were standing or something else—the remand instructed the district court to fix it via the mandatory provisions of Rule 19, or to dismiss the case.23
In AntennaSys, the situation was starkly different, largely because Windmill (the co-owner) had refused to exercise its right under Rule 19 and would not consent to be joined—a position that made perfect sense since it would be consenting to sue itself (through its allegedly infringing subsidiary).24 Therefore, unlike Lone Star, in which the defect could have been fixed by joining a party who seemingly would have had no objections to joining the suit on part of its exclusive licensee, in AntennaSys, the defect was a permanent one in the litigation. In Lone Star, the directive from the Federal Circuit on remand was to either join the patentee or dismiss the suit on the merits for failure to state a claim. In AntennaSys, critically, the remand allowed the district court to determine whether the patent co-owner had waived its objection to non-joinder, potentially allowing the case to go forward without all patent owners joined.25
It is that latter possibility, i.e., that a suit could proceed without all patent owners joined, that broke new ground. It is not clear that result was contemplated by Lone Star, and was certainly not contemplated by Lexmark, which discussed standing from the perspective of one who claimed to have suffered an injury from a false advertisement and not in relation to the Patent Act at all.26
The new rule that objections to having the patent owner (or all patent owners) as a plaintiff is a waivable defense raises a number of worrisome questions. One obvious result is if a co-owner tries to enforce a patent without joining or notifying the other co-owner(s), and the defendant does not raise the issue, and the other co-owner(s) do not intervene, the absent co-owner’s rights might be litigated without their knowledge.
Beyond that straightforward result, it is easy to imagine some other troubling scenarios involving licensees. For example, consider two adverse co-owners (as was the case in AntennaSys). One co-owner might determine itself to be better off without a patent to deprive its co-owner of some competitive advantage (e.g., licensing revenue). Now imagine that co-owner brings a suit by suing a defendant with a side agreement that they will settle with some sort of consent judgment based on an agreed claim construction, invalidity, etc. In this scenario, the defendant is motivated to not raise the issue of the co-owner’s joinder. Ethical issues surrounding such a conspiracy aside, if the co-owner is not diligently monitoring the actions of their co-owners, the co-owner’s rights may be stripped away without their knowledge.
Another worrying question is the effect of this change on suits brought by licensees. If having the patent owner as a plaintiff is a waivable defense and not one of standing, then a defendant could theoretically waive a defense and allow even a non-exclusive licensee to sue for patent infringement. That result, which seems an unavoidable conclusion now, is contrary to established law that forbids non-exclusive licensees that right.27 Imagine the following scenario: An exclusive licensee properly brings suit against an infringer on behalf of the patent owner, but the court later finds that the license is defective and, in fact, non-exclusive. Has the patent owner effectively waived their right to be joined as a plaintiff by relying on their belief that the licensee was exclusive? May the non-exclusive licensee continue the suit as the sole plaintiff?
Now imagine the following: A non-exclusive licensee wishing to escape its license sues a competitor (who, perhaps, also wants to escape any liability under the patent). The parties agree to settle the case immediately after service, perhaps with a consent judgment of a claim construction and invalidity. Does that final judgment bind the patent holder?
Perhaps that example is too extreme, as a patent holder might attempt to intervene after the fact to unwind the judgment on the basis of some fraud. But consider this example: A non-exclusive licensee sues a defendant in a truly adversarial action. The non-exclusive licensee immediately offers to settle for a nuisance fee of some amount less than it would cost the defendant to file a motion to dismiss for having failed to join the patent owner. The case settles, and the non-exclusive licensee grants the defendant a license in exchange for its settlement. The case is not pending long enough for the patent holder to notice, and the defendant never raises the defense. Is the patent holder allowed to sue again and void the license?
Ironically, the rule requiring patent holders to join a suit, i.e., that dismissal should follow the failure to join a party under Rule 19, was meant to protect “against the possibility that each coowner would subject an accused infringer to a different infringement suit on the same patent.”28 Yet, post-AntennaSys, that burden is now on the accused infringer. It must raise its objection to the lack of joinder to prevent the case from going forward. Should the other patent holder lie in wait if no objection is made, and sue again in its own name? Even if the infringer learned its lesson and attempted to join the original suing co-owner, is that decision going to prevent the other co-owner from maintaining its suit? The Federal Circuit doesn’t say.
At the end of the AntennaSys decision, the Federal Circuit notes (ironically) that “bad facts can make bad law.”29 This case is sure evidence of that.