Can Patent Standing Be Cured?

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Can patent standing be cured?

By Mike Turner, Esq., and Andrew Wood, Esq., Neal Gerber Eisenberg JULY 26, 2021 It is a hallmark of our court system that federal court plaintiffs must have standing grounded in Article III of the U.S. Constitution, which creates the jurisdiction of those courts. For decades, the Federal Circuit has taken a strict approach to determining standing in patent cases.

A suit may only be filed and maintained by a party with sufficient rights in a patent. Where these rights are found to be missing, the case is dismissed.

The Federal Circuit has traditionally refused to “cure” standing issues after the fact, even if based on mistake. However, a recent divided panel has called this tradition into question.

Referencing a footnote in a Supreme Court opinion, the Federal Circuit distinguished “statutory standing” from “constitutional standing,” and held that the former could and should be cured when state law supports doing so.

Unfortunately, the concepts of “statutory” and “constitutional” standing tend to blend together in patent law, which has led to dissent and confusion. This article explores the cases that created this distinction as well as their potential ramifications.

I. Constitutional vs. statutory standing in patent law Using the simplest of explanations, “constitutional standing” exists where a plaintiff has been harmed in a manner that the court has the power to redress, while “statutory standing” exists where a statute specifically grants a right to sue to a class of persons that includes the plaintiff.

But where it is the statute that provides the court with its only power to redress, the two forms of standing can become difficult to distinguish. As the Supreme Court has explained, the constitutional standing inquiry in such cases depends on “whether the statutory provision on which the claim rests properly can be understood as granting persons in the plaintiff’s position a right to judicial relief.”1 The Federal Circuit explained constitutional standing in the patent context at length in WiAV Sols. LLC v. Motorola, Inc., reaching the following conclusion: “The touchstone of constitutional standing in a patent infringement suit is whether a party can establish that it has an exclusionary right in a patent that, if violated by another, would cause the party holding the exclusionary right to suffer legal injury.”2 However, this exclusionary right comes from the Patent Act.3 Thus, a “patentee” also has “statutory standing.”4

Rights in a patent start with the inventors, as the original “patentees.” But these rights may be assigned, in which case the assignee becomes the patentee if the assignment effectively passes title.5 Exclusive licensees may also have constitutional standing where the license grants them a sufficient legally protected interest that the patent be enforced.6 However, most exclusive licensees lack “statutory standing,” so they typically must join the patentee.7 Because standing is a hard and fast requirement to maintain a patent suit, challenges often arise over the validity of assignments, and the sufficiency of licenses.

II. The Federal Circuit’s traditional hesitancy to cure standing The Federal Circuit has consistently required that standing exist upon initiation of a patent lawsuit and be maintained throughout the case.8 The appellate court has not allowed parties to cure standing after the fact, such as with a nunc pro tunc corrective assignment.9

Because standing is a hard and fast requirement to maintain a patent suit, challenges often arise over the validity of assignments.

It has also traditionally refused to overlook or correct assignment deficiencies.10 This jurisprudence has provided a clear and powerful defense that can end cases early or even overturn jury verdicts where there are chain of title issues.11 The Federal Circuit’s rationale for this has been in line with the Patent Act’s goal of notice. Defendants should be able to know not only what the patent covers, but who owns that right.12 Moreover, the owner should be a single and specific entity, so as to avoid claims of infringement from multiple parties and to enable meaningful settlement.

III. Lone Star: Statutory standing is not jurisdictional In 2019, the Federal Circuit issued an opinion that distinguished statutory standing from constitutional standing in patent cases along jurisdictional lines.

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Specifically, in Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., Judge Kathleen O’Malley explained that the question of whether a plaintiff has “all substantial rights” in a patent is not a jurisdictional issue, and thus it can be cured.13 In other words, statutory standing can be fixed, but constitutional standing cannot be.

Title in the patents-in-suit never passed to Jodi Schwendimann, because her employer never assigned them to her. There was no writing conveying her an interest in the patents, and under longstanding federal circuit precedent, the case would have been dismissed.

In Lone Star, the plaintiff was granted substantial and exclusive rights to a patent, but the grantor held several rights back.14 The district court recognized this as less than an assignment of “all substantial rights,” and found that, as a mere exclusive licensee, the plaintiff lacked standing without having joined the grantor, and that the grantor could not be joined after the fact to “cure” the lack of standing.15

When lack of standing was raised as a defense during the lawsuit, Ms. Schwendimann claimed it was a mistake, and that she was unaware a proper assignment had not been executed.26 Ms. Schwendimann tried all of the usual tactics that have failed to cure standing in the past.

The Federal Circuit saw this as an issue of mere “statutory standing,” because the plaintiff had been harmed by an infringement the district court had the power to adjudicate.16 The problem was that the plaintiff was not a “patentee” under the statute. Holding that this was not a jurisdictional issue, the Federal Circuit allowed joinder of the grantor after the fact, thereby “curing” the statutory standing issue.17

Curing standing only works where facts pre-exist to support an equitable remedy.

In reaching this conclusion, the Lone Star court recognized it could be seen as a departure from “earlier authority treating [35 U.S.C.A.] § 281 as a jurisdictional requirement.”18 To justify this departure, the appellate court cited to dicta found in a footnote from a 2014 Supreme Court case, which, in turn, quotes a 2002 Supreme Court case in stating: “the absence of a valid … cause of action does not implicate subject-matter jurisdiction.”19 Thus, Lone Star allows “statutory standing” to be cured following initiation of a suit, where “constitutional standing” still cannot be cured.20 But many cases do not so clearly fall within the “constitutional” vs. “statutory” buckets, and courts still blend the two together when handling patent cases.21 Indeed, even the Lone Star panelists disagreed as to which form of standing was implicated the following year in Schwendimann v.

Arkwright Advanced Coating Inc.22

IV. Schwendimann: An assignment is created after the fact and cures standing In 2002, Jodi Schwendimann reached an agreement with her thenemployer that she would be assigned certain patent applications in satisfaction of amounts owed to her. 23 The assignment of one of those applications (the ‘845 Application) was never executed, and the assignment for a different application was filed with the USPTO in place of the ‘845 Application assignment in 2003.24 The ‘845 Application resulted in the patents that were the subject of the Schwendimann lawsuit filed in 2011, thus, this assignment failure was a potentially dispositive issue.25

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First, after the defendant raised the lack of assignment as a defense, she and her former employer executed a new assignment transferring the patents.27 This would have failed under longstanding precedent.28 Ms. Schwendimann argued, and the district court agreed, that she and her employer both intended to assign the ‘845 Application years before, and that they had a valid agreement to assign that application.29 This would also have failed under longstanding precedent because “an agreement to assign [is] not an assignment.”30 Finally, Ms. Schwendimann argued that the district court should equitably reform the assignment that was recorded with the USPTO into one covering the ‘845 Application. But this was much more than the “scrivener’s errors” that the Federal Circuit had previously permitted to be corrected.31 Here an assignment of the application in question was not executed at all. Nevertheless, the district court turned to state law and reformed the document initially filed with the USPTO, finding that it was intended by all parties to set forth an assignment of the ‘845 Application. On that basis, the district court found that there was subject matter jurisdiction and rejected the lack of standing defense on summary judgment.32 Citing her opinion in Lone Star, Judge O’Malley found for the majority that there was again no issue of constitutional standing, but only one of “statutory standing.” 33 As a result, the district court was allowed to apply state law to reform the contract.34 Finding that the district court did not commit clear error in doing so, the appellate court affirmed.

Judge Jimmie V. Reyna, who had joined Judge O’Malley on Lone Star, disagreed. In his dissent, he argued that the question was not one of statutory standing, but one of constitutional standing, i.e., “whether Ms. Schwendimann had any requisite ‘exclusionary rights’ in the patents-in-suit at the time of filing her infringement suit to establish Article III standing.”35 Specifically, Judge Reyna noted that Ms. Schwendimann never alleged any basis for standing other than an assignment that did not exist.36 This was not an issue where she had some rights such that she could be harmed (such as the Lone Star exclusive licensee).

Rather, she had no rights due to a lack of written assignment. Judge Reyna argued that, as a result, well-settled precedent demanded dismissal of the suit.37 He further cautioned how the majority

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opinion would lead to uncertainty, and might result in litigants having to face lawsuits from multiple plaintiffs that each make separate claims to a patent - one initially and another by “curing” title later.38 This has been a traditional argument against allowing standing issues to be cured post-filing,39 and was expressly identified as a concern that was absent in the Lone Star case.40

V. Implications Lone Star and Schwendimann are relatively new, so it remains to be seen what facts cases will present to further delineate the boundaries of constitutional versus statutory standing. While Schwendimann opens the door for courts to retroactively cure issues where state law provides for it, the door still appears closed for plaintiffs to cure the issues themselves.

In other words, curing standing only works where facts pre-exist to support an equitable remedy. You cannot make new facts, such as with a retro-active assignment out of mere convenience.41 Still, plaintiffs are well advised to conduct their due diligence before filing suit, and to cure any possible chain of title defects in advance.

Taking Judge Reyna’s advice, plaintiffs would also be well-advised to put more thought and detail into pleading standing in the complaint.

late tax payments; could not be cured by paying the taxes late); but see Speedplay Inc., v. Bebop Inc., 211 F.3d 1245 (Fed. Cir. 2000) (listing wrong patent number in an assignment was a “scrivener’s error” — standing upheld because proper patent included in other defined terms).

Gaia Techs., 93 F.3d at 780 (reversing verdict of infringement where plaintiff found to lack standing on appeal and directing district court to dismiss the case in favor of defendant).

11

Aspex Eyewear Inc. v. Miracle Optics Inc., 434 F.3d 1336, 1340 (expressing concern over multiple lawsuits without clarity on standing).

12

13

925 F.3d 1225, 1234–35 (Fed. Cir. 2019).

14

Id. at 1227-28.

15

Id. at 1228-29.

16

Id. at 1234.

17

Id. at 1235-36.

18

Id. at 1235.

Id., citing Lexmark Int’l. v. Static Control Components Inc., 572 U.S. 118, 128, n.4 (2014) (quoting Verizon Md. Inc. v. Public Serv. Comm’n of Md., 535 U.S. 635, 642-643 (2002).

19

20

Id. at 1236–38.

See, e.g., Regents of the Univ. of Cal. v. LTI Flexible Prods. Inc., No. 20-cv-8686, order issued (N.D. Cal. May 19, 2021) (Orrick, J.)(describing constitutional and statutory standing as “exist[ing] along the same lines” before dismissing a case for lack of both on the same facts).

21

22

959 F.3d 1065 (Fed. Cir. 2020).

23

Id. at 1068.

24

Id. at 1069.

For example, instead of simply claiming to be the owner of a patent, where warranted, plead more specifically why you control the exclusionary rights set forth in the patent, and particularly the right to sue for past damages.

25

Id. at 1070.

26

Id. at 1069.

27

Id.

28

See Enzo APA & Son Inc. v. Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998).

The issue of standing should not be plead merely by mention of an assignment that may turn out to be defective. Defendants suspecting a problem with chain of title should familiarize with the state laws of the jurisdiction to assess how the defect might be addressed by a court.

29

Schwendimann, 959 F.3d at 1073.

Notes 1

Warth v. Seldin, 422 U.S. 490, 500 (1975).

2

631 F.3d 1257, 1265 (Fed. Cir. 2010).

See Id. at 1264 (“The Patent Act of 1952 is the source of the legally protected interests at issue here.”).

3

4

35 U.S.C.A. § 281.

See 35 U.S.C.A. §100(d) (“[The term] patentee includes not only the patentee to whom the patent was issued but also the successors in title to the patentee.”).

5

6

WiAV Sols. LLC v. Motorola Inc., 631 F.3d 1257, 1264 (Fed. Cir. 2010).

See, e.g., Luminara Worldwide LLC v. Liown Elecs. Co., 814 F.3d 1343, 1349-50 (Fed. Cir. 2016).

7

See, e.g., Alps South LLC v. Ohio Willow Wood Co., 787 F.3d 1379, 1384-86 (Fed. Cir. 2015); Abraxis Bioscience Inc. v. Navinta LLC, 625 F.3d 1359, 1367 (Fed. Cir. 2010).

8

Enzo APA & Son Inc. v. Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998) (“[N]unc pro tunc assignments are not sufficient to confer retroactive standing.”); Gaia Techs. Inc. v.

Reconversion Techs. Inc., 93 F.3d 774 (Fed. Cir. 1996).

9

30

Arachnid Inc. v. Merit Indus. Inc., 939 F.2d 1574, 1580 (Fed. Cir. 1991).

31

See, e.g., Speedplay Inc., v. Bebop Inc., 211 F.3d 1245, 1250 (Fed. Cir. 2000).

32

Schwendimann, 959 F.3d at 1070.

Id. at 1071 (“Because [the] complaint contained … allegations that [plaintiff] is the owner by assignment of the ‘845 patent and Appellants infringed that patent … there is no “standing” issue to be decided.”). Presumably the majority meant to say the ‘845 Application, as there was no ‘845 patent at issue.

33

Id. at 1074 (“By virtue of the reformation, the written instrument was corrected nunc pro tunc, to the point of the assignment.”).

34

35

Id. at 1077.

Id. (“Ms. Schwendimann never asserted, before the district court or on appeal, that she had any exclusionary rights in the patents-in-suit at the time of filing separate and apart from the Hand-Altered Copy.”).

36

37

Id. at 1081.

38

Id.

39

See, e.g., Gaia Techs. Inc. v. Reconversion Techs. Inc., 93 F.3d 774, 780 (Fed. Cir. 1996).

40

Lone Star, 925 F.3d at 1233.

Yet, a court citing Lone Star recently allowed an assignment made during litigation to cure an otherwise fatal defect that would have resulted from a terminal disclaimer requiring common ownership of multiple patents that were not commonly owned when the case was filed. See Integrity Worldwide Inc. v. Rapid-ETS Ltd., No. 17-cv-55, 2021 WL 3130082 (N.D. Tex. July 22, 2021).

41

See, e.g., Paradise Creations Inc. v. U V Sales Inc., 315 F.3d 1304 (Fed. Cir. 2003) (assignment void where made when assignee was administratively dissolved for 10

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About the authors Mike Turner (L) is a partner in the Intellectual Property Group at Chicago-based Neal Gerber Eisenberg. With experience in both the litigation and transactional sides of IP, he serves as lead counsel in patent and trademark cases, and also manages global patent and trademark portfolios. He can be reached at mturner@nge.com. Andrew Wood (R) is an associate in the firm’s IP group. He focuses his practice on patent and trademark litigation, legal opinions and patent portfolio management. He can be reached at awood@nge.com.

This article was first published on Westlaw Today on July 26, 2021.

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