Is your “exclusive license” really “exclusive?”

Credit: Federal Circuit Website

In WiAV Solutions LLC v. Motorola, Inc. (Fed. Cir. 2010), the United States Court of Appeals for the Federal Circuit (CAFC) recently defined the term “exclusive” in patent licensing agreements to mean a party who holds any exclusionary rights to the patent, rather than sole exclusionary rights.  The precise definition of exclusivity is critical because only exclusive licensees have standing to sue for patent infringement.

The issue arose when WiAV Solutions, LLC alleged it was the exclusive licensee of seven patents owned by Mindspeed Technologies, Inc. and sued multiple companies including Motorola, Inc., Nokia Corporation, Palm, Inc., and Sony Ericsson Mobile Communications, Inc. for infringement of the Mindspeed patents.

The district court held WiAV was not an “exclusive licensee” under Textile Productions, Inc. v. Mead Corp. and therefore lacked constitutional standing enforce the patents–because the original owner of the Mindspeed patents had assigned the patents and a subsidiary of the assignee had received a limited, non-exclusive license. Because licensees other than WiAV retained a limited licensing right, WiAV could not be an exclusive licensee.

CAFC reversed the district court decision and held “a licensee is an exclusive licensee of a patent if it holds any of the exclusionary rights that accompany a patent.”  WiAV did not lose its constitutional standing to sue for infringement just because its exclusive license was subject to certain rights and limitations in existence at the time of the license.

CAFC reasoned that a party may hold one or more exclusionary rights, such as an exclusive licensee, and as long as that party suffers a legally cognizable injury when an unauthorized party uses its rights, there is standing to sue.  Thus the test of legal standing for patent infringement suits is whether a party can prove it has any exclusive right to a  patent, and suffers legal injury because others violate that right.

CAFC further reasoned that a superior right of exclusion is also a key factor for determine exclusivity: “[d]epending on the scope of its exclusionary rights, an exclusive licensee may have standing to sue some parties and not others…[i]f an exclusive licensee has the right to exclude others from practicing a patent, and a party accused of infringement does not possess, and is incapable of obtaining, a license of those rights from any other party, the exclusive licensee’s exclusionary right is violated.”

Therefore, CAFC held that “an exclusive licensee does not lack constitutional standing to assert its rights under the licensed patent merely because its license is subject not only to rights in existence at the time of the license but also to future licenses that may be granted only to parties other than the accused.” CAFC concluded that none of the preexisting licenses gave the Defendants the right to practice the patents in WiAV’s field of exclusivity, and therefore reversed the district court decision.

Nevertheless, CAFC retained a limitation on this broad rule of standing by stating that “[b]ecause an exclusive licensee derives its standing from the exclusionary rights it holds, it follows that its standing will ordinarily be coterminous with those rights.” CAFC gave two examples of situations in which an exclusive licensee would still lack standing. First, if the party being sued held a preexisting license under the patent to engage in the allegedly infringing activity, there would be no standing to sue that party. Second, an exclusive licensee would lack standing to sue a party who could obtain such a license from another party with the right to grant it. The key point is that an exclusive licensee must have an exclusionary right with respect to the alleged infringer in order to have standing to sue.

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