Lone Star Silicon Innovations v. Nanya Technology Corporation
Opinion
Lone Star Silicon Innovations LLC ("Lone Star") sued Appellees
1
for infringing various patents.
2
The district court concluded that Lone Star does not own these patents and therefore lacks the ability to assert them.
In re Lone Star Silicon Innovations LLC
, No. 3:17-cv-03980-WHA,
I. BACKGROUND
A. The Patent Transfer Agreement
The asserted patents were originally assigned to AMD, which later executed an agreement purporting to transfer "all right, title and interest" in the patents to Lone Star. The transfer agreement, however, imposes several limits on Lone Star. For example, Lone Star agreed to only assert the covered patents against "Unlicensed *1228 Third Party Entit[ies]" specifically listed in the agreement. J.A. 2025; J.A. 2032. New entities can only be added if Lone Star and AMD both agree to add them. J.A. 2025; J.A. 2048. If Lone Star sues an unlisted entity, AMD has the right-without Lone Star's approval-to sublicense the covered patents to the unlisted target. J.A. 2028; J.A. 2032. AMD can also prevent Lone Star from assigning the patents or allowing them to enter the public domain. J.A. 2026 ("Any assignment of an Assigned Patent in violation of this Section 2.6 shall be void ab initio."); J.A. 2027 (explaining that if Lone Star intends to stop paying maintenance fees for a covered patent it must "notify AMD of its decision" and "assign the Abandoned Patent to AMD or to a Person selected by AMD in AMD's sole discretion if requested by AMD ...."). AMD and its customers can also continue to practice the patents, J.A. 2027, and AMD shares in any revenue Lone Star generates from the patents through "monetization efforts." J.A. 2029.
B. District Court Litigation
Lone Star sued Appellees, who are all listed as Unlicensed Third Party Entities in the transfer agreement, in successive infringement actions filed between October 2016 and December 2016. In each case, Lone Star alleged, among other things, that AMD transferred "all right, title, and interest" in the asserted patents to Lone Star. See, e.g. , J.A. 2621. But it took Lone Star nearly a year after filing suit to produce the transfer agreement. Once it did, Appellees filed motions to dismiss their respective suits under Federal Rule of Civil Procedure 12(b)(1). J.A. 3913 (Nanya); J.A. 351 (UMC).
The district court granted Appellees' motions.
3
As the district court correctly explained, we have recognized three categories of plaintiffs in patent infringement cases.
In re Lone Star
,
In determining whether the agreement between AMD and Lone Star transferred "all substantial rights" to the asserted patents, the district court examined the rights transferred to Lone Star and those retained by AMD. Id. at *3 ("Whether an agreement constitutes an assignment or license depends not on the 'labels' or 'bare formalities' of title transfer but on the 'substance of what was granted.' "). The district court focused on three aspects of the transfer agreement in particular: (1) AMD's ability to control how Lone Star asserts or transfers the patents, (2) Lone Star's inability to practice the patents, and (3) AMD's right to share in "monetization efforts." Id. at *3-5. The district court then compared the balance of rights here to previous cases where we have said agreements did or did not transfer all substantial rights. Id. Ultimately, the district *1229 court concluded that AMD did not transfer all substantial rights in the patents to Lone Star. Id. at *6.
After it concluded that Lone Star could not sue in its own name, the district court dismissed the case.
Id.
And although it acknowledged that Lone Star had asked to join AMD, the district court concluded that doing so would "reward Lone Star for its litigation gimmick and unfairly prejudice defendants."
Id.
In particular, the district court emphasized that if AMD were joined it "would enjoy earlier filing dates for [its] claims than defendants would for any counterclaims for purposes of recovering damages."
Id.
(citing
Lone Star timely appealed. We have jurisdiction under
II. DISCUSSION
Lone Star argues that it possesses all substantial rights in the asserted patents and therefore can assert them in its own name. And, if it cannot, Lone Star maintains that it must be given an opportunity to join AMD as a plaintiff before this case is dismissed. Appellees argue that Lone Star does not possess all substantial rights and therefore lacks standing to bring suit and that the district court did not err in refusing to consider Lone Star's request to join AMD. We address these arguments below.
A. All Substantial Rights
Title 35 allows a "patentee" to bring a civil action for patent infringement.
If the party asserting infringement is not the patent's original patentee, "the critical determination regarding a party's ability to sue in its own name is whether an agreement transferring patent rights to that party is, in effect, an assignment or a mere license."
Id.
at 1319. In distinguishing between "an assignment" and a "mere license," we "examine whether the agreement transferred all substantial rights to the patents."
Id.
(internal quotation marks omitted). This inquiry depends on the substance of what was granted rather than formalities or magic words.
See
Waterman v. Mackenzie
,
If a party cannot bring suit in its own name, it may still bring suit along with the patentee so long as it possesses "exclusionary rights."
Morrow v. Microsoft Corp.
,
Against this backdrop, Lone Star asserts two reasons why it believes it may sue in its own name. First, it argues that the transfer agreement was a complete assignment because a single provision in the agreement conveyed "all right, title and interest" in the patents to Lone Star. J.A. 2025. Second, Lone Star argues that, even if we look beyond this provision, the transfer agreement gave it all substantial rights in the patents, at least with respect to these alleged infringers. The district court rejected both arguments. We review the district court's conclusions de novo.
Luminara Worldwide, LLC v. Liown Elecs. Co.
,
1. "All Right, Title and Interest"
Lone Star argues that our analysis begins and ends with the transfer agreement's broad conveyance of "all right, title and interest" in the covered patents. J.A. 2025. But, as the district court correctly recognized, the rest of the agreement "substantially curtail[s] Lone Star's rights."
Lone Star
,
Lone Star's reliance on
Rude v. Westcott
,
Lone Star also argues that the district court "misconstrued the [transfer agreement] at a fundamental level." Appellant Br. at 26. According to Lone Star, the broad conveyance of rights transferred AMD's rights to Lone Star. That AMD retains certain rights, such as the right to neutralize any enforcement effort by Lone Star against an unlisted target, reflects a "contractual promise[ ]" from Lone Star back to AMD rather than a limit on which rights were transferred to Lone Star.
Id.
at 27. But such a distinction finds no support in our case law. As stated above, the substance of the transaction is what matters
*1231
and the substance of this transfer agreement gave AMD important rights in the patents. The relevant question here is whether AMD's rights, however retained or reacquired, include any substantial rights.
See
AsymmetRx
,
2. The Totality of the Transfer Agreement
We turn next to whether the "totality" of the transfer agreement reflects a transfer of all substantial rights in the asserted patents to Lone Star.
In considering this question, we have often focused on two salient rights: enforcement and alienation. For example, in
Intellectual Property Development, Inc. v. TCI Cablevision of California, Inc.
,
As to enforcement, Lone Star needs AMD's consent to file suit against unlisted entities. For example, if Lone Star asserts the patents against a target that is not listed in the transfer agreement, then AMD can grant a sublicense and negate the lawsuit. AMD can also negate any effort to add new targets to the agreement. Lone Star's enforcement rights are, thus, illusory, at least in part.
See
Speedplay, Inc. v. Bebop, Inc.
,
*1232
Lone Star emphasizes that it possesses the right to initiate lawsuits and the right to indulge infringement (by not initiating a lawsuit) at least as to unlicensed entities, which includes Appellees. It is true that we have treated the exclusive right to sue as significant.
See, e.g.
,
Sicom
,
Lone Star insists that restrictions on suing unlisted targets are irrelevant here because Appellees are all Unlicensed Third Party Entities. Appellant Br. at 32 ("[I]n Diamond Coating ... and other similar cases, the transferor's retained control over litigation had the potential to impact the licensee's litigation conduct and strategies with respect to the named defendants."). But we rejected this same argument in Sicom :
We find unpersuasive Sicom's response that it is not suing Appellees' customers, nor suing for non-commercial infringement, and that this court should not consider risks that are outside the scope of the facts in this case. Sicom's focus on the parties in suit is misplaced where this court has established that the intention of the parties to the Agreement and the substance of what was granted are relevant factors in determining whether all substantial rights in a patent were conveyed.
Sicom
,
As to alienation, the agreement restricts Lone Star's ability to transfer the asserted patents. In particular, Lone Star cannot transfer the patents to a buyer unless that buyer agrees to be bound by the same restrictions as Lone Star. J.A. 2026. Otherwise, AMD can withhold its required consent and halt the sale. While Lone Star argues that this restriction is insignificant because AMD cannot "unreasonably" withhold its consent, Lone Star concedes that it would be reasonable, indeed expected, for AMD to withhold consent if the prospective transferee refuses to be bound by the transfer agreement. Appellant's Br. at 46 ("In the full context of § 2.6, it would not be reasonable for AMD to withhold consent so long as [Lone Star] complied
*1233
with the requirement ... to secure the transferee's agreement to be bound by [the transfer agreement]."). Not only does this substantially restrict Lone Star's ability to transfer the patents, it ensures that AMD will always control how the patents are asserted.
See
Propat Int'l Corp. v. Rpost, Inc.
,
In addition to these restrictions on enforcement and alienation, several other aspects of the agreement further support our conclusion. For example, the agreement secures a share of Lone Star's "monetization efforts" for AMD.
See
Propat
,
Lone Star argues that the policy underpinning our "all substantial rights" test, the danger of multiple litigations against the same defendant by multiple plaintiffs, is not present here because AMD cannot sue Appellees. But we have also recognized a danger in allowing patentees to award a "hunting license" to third-parties.
See
Prima Tek II, L.L.C. v. A-Roo Co.
,
*1234 This additional policy concern lends support to our conclusion here.
In sum, we agree with the district court that AMD did not transfer all substantial rights in the asserted patents. Lone Star is therefore not the relevant patentee and cannot assert these patents in its own name under § 281.
B. Article III Standing
Appellees argue that, because Lone Star is not a patentee and never explicitly alleged that it was an exclusive licensee, it lacks standing to bring suit. We disagree.
The Constitution of the United States vests judicial power in the federal courts. U.S. Const. art. III, § 1. That power may only be exercised to resolve "Cases" or "Controversies."
We have recognized that those who possess "exclusionary rights" in a patent suffer an injury when their rights are infringed.
See, e.g.
,
WiAV
,
Appellees insist that Lone Star lacks constitutional standing because it did not allege it was an "exclusive licensee." Appellees' Br. at 59 ("[Lone Star] has no basis for constitutional standing, for it never alleged that it is an exclusive licensee."). But constitutional standing also does not depend on labels; it is the substance of the allegations that matters. Lone Star adequately alleged that it possesses exclusionary rights and that Appellees infringe those rights.
See, e.g.
, J.A. 2621-2655. The fact that it believed its rights included all substantial rights does not mean its allegations fall short of alleging a cognizable injury.
Cf.
Morrow
,
Although Lone Star cleared this constitutional threshold, the district court concluded that it lacked standing to proceed without AMD. But treating AMD's absence as implicating Lone Star's standing confuses the requirements of Article III-which establish when a plaintiff may invoke the judicial power-and the requirements of § 281-which establish when a party may obtain relief under the patent laws. The district court's mistake, repeated by the parties on appeal, is understandable. Indeed, we have often treated "statutory standing,"
i.e.
whether a party can sue under a statute such as § 281, as jurisdictional.
See
AsymmetRx
,
But the Supreme Court has recently clarified that so-called "statutory standing" defects do not implicate a court's subject-matter jurisdiction:
We have on occasion referred to [whether a plaintiff may bring suit under a certain statute] as "statutory standing" and treated it as effectively jurisdictional ... That label is an improvement over the language of "prudential standing," since it correctly places the focus on the statute. But it, too, is misleading, since "the absence of a valid (as opposed to arguable) cause of action does not implicate subject-matter jurisdiction, i.e. , the court's statutory or constitutional power to adjudicate the case."
Lexmark Int'l, Inc. v. Static Control Components, Inc.
,
Lexmark
is irreconcilable with our earlier authority treating § 281 as a jurisdictional requirement. Indeed, following
Lexmark
, several courts have concluded that 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.
See, e.g.
,
Minden Pictures, Inc. v. John Wiley & Sons, Inc.
,
Accordingly, although Lone Star does not possess all substantial rights in the asserted patents its allegations still satisfy Article III.
See Lexmark
,
C. Rule 19
Lone Star argues that, because it has standing, even if it lacks all substantial rights in the patents, it should be given an opportunity to join AMD as a necessary party before this case is dismissed. We agree. This result is compelled by Federal Rule of Civil Procedure 19 and our case law.
In
Independent Wireless
, the Supreme Court acknowledged that licensees cannot bring suit in their own name.
The rule of Independent Wireless , as incorporated into Rule 19, provides a clear command. A necessary party who is subject to service of process and whose joinder will not otherwise destroy a court's subject-matter jurisdiction "must be joined." Fed. R. Civ. P. 19(a)(1). The rule extends its command directly to courts. See Fed. R. Civ. P. 19(a)(2) ("If a person has not been joined as required, the court must order that the person be made a party ." (emphasis added)).
Of course, while the rule's command is mandatory, it is not inflexible. If a party whose joinder is otherwise required by part (a) cannot be feasibly joined, part (b) allows a court to consider whether the case should proceed anyway or be dismissed because that party is indispensable. Fed. R. Civ. P. 19(b) ;
see also
A123 Sys.
,
*1237
We have interpreted Rule 19 and
Independent Wireless
as directing courts to join patentees along with licensees who otherwise have standing. In
Abbott
, for example, we explained that such joinder is "required" and consistent with "the policies underlying Fed. R. Civ. P. 19."
Joinder also furthers the purposes of Rule 19. As the Supreme Court recognized in
Independent Wireless
, joining a patentee under Rule 19 helps "secur[e] justice" for licensees so they can vindicate their rights.
The district court's dismissal was inconsistent with Rule 19 and our case law. If AMD is the patentee, as the district court correctly concluded, then AMD's joinder would ordinarily be "required."
See
*1238
Abbott
,
The district court also faulted Lone Star for not expressly alleging that it was an "exclusive licensee."
Appellees argue that Rule 19 is inapposite because it only applies where a district court dismisses for failure to join a party under Rule 12(b)(7). Appellees' Br. at 57 ("The Rule 19 cases and commentary ... explain how courts should proceed in the face of motions to dismiss for failure to join a required party, which is a Rule 12(b)(7) motion."). In fact, some of the defendants below did move for dismissal under Rule 12(b)(7). See, e.g., J.A. 14534. Regardless, Rule 19 is mandatory and so it applies whether a defendant invokes Rules 12(b)(1), (6), (7), or none of the above.
Finally, while Appellees point to cases in which we have affirmed dismissals where licensees lacked all substantial rights, these cases are distinguishable. Appellees' Br. at 51-53. In
Sicom
, for example, the licensee did not contest that its case should be dismissed assuming it could not establish that it possessed all substantial rights.
Ultimately, once the district court correctly concluded that AMD did not transfer all substantial rights in the asserted patents to Lone Star, the district court *1239 should have considered whether AMD could have been or needed to be joined before dismissing this case. Its failure to do so was legally erroneous.
III. Conclusion
We have considered the parties' remaining arguments and find them unpersuasive. Accordingly, we agree with the district court that Lone Star cannot bring suit in its own name because it does not possess all substantial rights in the asserted patents. But we vacate the district court's dismissal and remand with an instruction that it consider whether AMD must be joined here. We offer no view, however, on whether AMD must be or even can be joined. Our instruction to the district court is simply that it must consider the question.
VACATED AND REMANDED
COSTS
No costs.
Appellees in these consolidated appeals include Nanya Technology Corporation, Nanya Technology Corporation U.S.A., and Nanya Technology Corporation Delaware ("Nanya") and United Microelectronics Corporation and UMC Group (USA) ("UMC").
These include U.S. Patent Nos. 5,912,188 ; 6,023,085 ; 6,097,061 ; 6,388,330 ; RE39,518 ; 5,973,372 ; 6,153,933 ; 5,872,038 ; 6,103,611 ; 6,326,231 ; 6,380,588 ; and 6,046,089 ("the asserted patents").
Because the district court did not consolidate these cases below, it entered separate but identical orders as to Nanya and UMC (as well as other defendants whose appeals have been dismissed). For clarity, we will refer to a single order throughout.
See
In re Lone Star
,
For the same reason, the fact that Lone Star has paid the maintenance fees for the asserted patents does not negate the reversionary interest provided to AMD in the agreement.
Relying on
Diamond Coating
, the district court also considered whether Lone Star has the right "to make, use, and sell products or services under the patent[s]."
In re Lone Star
,
Although the district court erred in treating Appellees' motions as jurisdictional, its error was harmless because we review motions to dismiss under Rule 12(b)(1) and Rule 12(b)(6) de novo.
See
Harris v. Amgen, Inc.
,
We have recognized a limited exception to Rule 19 's mandatory command where the rule conflicts with "substantive patent rights."
STC.UNM v. Intel Corp.
,
Appellees contend that the decision to allow joinder of parties is discretionary under Rule 15. Appellees' Br. at 49 ("Rule 15(a)(2) ... prove[s] that curative amendments are permissive, not mandatory, and fall within the district court's broad discretion."). But Rule 15 and Rule 19 serve different functions. Where there is a request to join an absent party, it is Rule 19 that governs.
Reference
- Full Case Name
- LONE STAR SILICON INNOVATIONS LLC, Plaintiff-Appellant v. NANYA TECHNOLOGY CORPORATION, Nanya Technology Corporation U.S.A., Nanya Technology Corporation Delaware, Defendants-Appellees Lone Star Silicon Innovations LLC, Plaintiff-Appellant v. United Microelectronics Corporation, UMC Group (USA), Defendants-Appellees
- Cited By
- 92 cases
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- Published