Abbott Laboratories v. Diamedix Corp., 94-1345

• Decision Date: 07 February 1995
• Docket Number: No. 94-1345,94-1345
• Citation: 33 USPQ2d 1771,47 F.3d 1128
• Parties: , 31 Fed.R.Serv.3d 392, 33 U.S.P.Q.2d 1771 ABBOTT LABORATORIES, Plaintiff-Appellee, v. DIAMEDIX CORPORATION, Proposed Intervenor-Appellant, v. ORTHO DIAGNOSTIC SYSTEMS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1128

47 F.3d 1128

63 USLW 2544, 31 Fed.R.Serv.3d 392,

33 U.S.P.Q.2d 1771

ABBOTT LABORATORIES, Plaintiff-Appellee, v. DIAMEDIX CORPORATION, Proposed Intervenor-Appellant, v. ORTHO DIAGNOSTIC SYSTEMS, INC., Defendant-Appellee.

No. 94-1345.

United States Court of Appeals, Federal Circuit.

Feb. 7, 1995.

Daniel E. Reidy, Jones, Day, Reavis & Pogue, Chicago, IL, argued for plaintiff-appellee. With him on the brief was Kevin G. McBride, Allison J. Zousmer and Sandra B. Weiss, of counsel.

George H. Gerstman, Gerstman, Ellis & McMillin, Ltd., Chicago, IL, argued for proposed intervenor-appellant. With him on the brief was Terrence W. McMillin.

Harry J. Roper and Raymond N. Nimrod, Roper & Quigg, Chicago, IL, were on the brief for defendant-appellee.

Before RICH, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and BRYSON, Circuit Judge.

BRYSON, Circuit Judge.

Diamedix Corporation appeals from an order denying its motion to intervene in a patent infringement action. The action was brought by Abbott Laboratories, which held a license from Diamedix, against a third party, Ortho Diagnostic Systems, Inc. We conclude that the district court should have permitted Diamedix to join the lawsuit as a party-plaintiff. The order of the district court denying the motion to intervene is therefore reversed.

I

United States Patents Nos. 4,474,878 (the '878 patent) and 4,642,285 (the '285 patent) were issued in 1984 and 1987, respectively, and assigned to appellant Diamedix Corporation. The two patents relate to immunoassay systems used to test blood for the presence of the hepatitis virus.

Prior to 1988, Diamedix granted eight non-exclusive licenses under the '878 and '285 patents. In August 1988, following a dispute with appellee Abbott Laboratories over alleged infringement of the patents, Diamedix entered into a "license agreement" with Abbott. In exchange for annual royalty payments, Abbott received a worldwide license to make, use, and sell products incorporating the inventions claimed in the patents. The license was exclusive to Abbott and its affiliates, but was subject to the rights previously granted to Diamedix's other licensees. In addition, the agreement reserved to Diamedix the right to make and use products that exploited the patents, as well as the right to sell such products to Diamedix's previous licensees, to Abbott's sublicensees, to end users, and to certain other parties to fulfill Diamedix's existing contractual obligations. The agreement was to remain in effect for the life of the patents unless Abbott decided to terminate it earlier. The agreement was not assignable by either party without the consent of the other.

In addition to those general terms, the agreement contained a clause addressing the rights of the parties in suits against third parties for infringement of the patent rights. That clause provided as follows:

If any patent included in PATENT RIGHTS is infringed, Abbott shall have the right, but not the obligation, to bring suit to suppress such infringement against any unlicensed third party. However, if such infringement continues and DIAMEDIX requests ABBOTT in writing to bring such suit, and ABBOTT declines to bring such suit against such infringer within six (6) months of such request, DIAMEDIX shall have the right to bring such suit. The party who brings suit shall control the prosecution and any settlements thereof provided, however, Abbott shall not prejudice or impair the PATENT RIGHTS in connection with such prosecution or settlements and shall not enter into any settlement which would result in DIAMEDIX receiving less than one percent (1%) of the net sales of the third party's infringing products. The other party shall be entitled to be represented therein by counsel of its own selection at its own expense.

In January 1994, Abbott filed an action in the United States District Court for the Northern District of Illinois charging appellee Ortho Diagnostic Systems, Inc., with infringing the '878 and '285 patents. Ortho denied the allegations of infringement, asserted as an affirmative defense that the patents are invalid, and claimed that Abbott is barred from seeking relief because of its delay in bringing suit.

Because Abbott did not join Diamedix as a party to the lawsuit, Diamedix promptly filed a motion to intervene and a complaint as plaintiff-intervenor alleging that Ortho had infringed its rights under the two patents. In its motion, Diamedix argued that it was entitled to intervene under Fed.R.Civ.P. 24(a)(2) based on its rights as legal owner of the patents. In the alternative, Diamedix moved to be permitted to intervene under Fed.R.Civ.P. 24(b). Diamedix also suggested that as the holder of legal title to the patents, it might be required to participate in order to give the district court jurisdiction over the suit. Ortho supported Diamedix's motion to intervene, on the ground that Diamedix retained a significant interest in the patents-in-suit under its agreement with Abbott and might be an indispensable party under Fed.R.Civ.P. 19(b).

The district court denied Diamedix's motion to intervene, based on its conclusion that Diamedix's interests in the lawsuit were adequately represented by Abbott. The court explained that Diamedix and Abbott share the common goals of enforcing the patent rights against Ortho and maximizing the recovery of monetary damages. Diamedix argued that Abbott has an incentive not to defend the validity of the patents with great vigor, since a decision invalidating the patents would free Abbott from its royalty obligations. Diamedix pointed out that shortly after entering into the licensing agreement, Abbott had requested reexamination of the '878 and '285 patents by the Patent and Trademark Office (PTO), urging that all of the claims of those patents were unpatentable in light of prior art. The district court dismissed Diamedix's contention, however, noting that under the agreement with Diamedix, Abbott had the obligation not to "prejudice or impair the patent rights," and that there was no reason to believe that Abbott would fail to honor its obligation in the action against Ortho. In addition, the court concluded that as a practical matter Diamedix's intervention "would be nothing more than a paper entry into the clerk's docket," because Abbott had the right under the licensing agreement to control the prosecution of any infringement action that it initiated.

Diamedix took an immediate appeal from the order denying its motion to intervene. This court stayed the action in the district court pending the resolution of the appeal.

II

The parties to this appeal have focused principally on whether intervention should have been granted under Fed.R.Civ.P. 24 and, in particular, whether the district court properly denied intervention on the ground that Abbott adequately represents Diamedix's interests in the infringement action. We believe, however, that this case can best be resolved by addressing a related but logically antecedent question: whether a licensee such as Abbott has the statutory right to bring an action for infringement without joining the patent owner, Diamedix. Because we conclude that Abbott may pursue its infringement action against Ortho only if Diamedix is permitted to join that action, we hold that the district court should have ordered Diamedix to be joined as a party.

A

The Patent Act of 1952 provides that a civil action for infringement may be brought by "a patentee." 35 U.S.C. Sec. 281. The statute defines "patentee" to include the party to whom the patent was issued and the successors in title to the patent, 35 U.S.C. Sec. 100(d), and has been interpreted to require that a suit for infringement ordinarily be brought by a party holding legal title to the patent. See Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1578-79, 19 USPQ2d 1513, 1517-18 (Fed.Cir.1991). Parties not holding title to the patent have been accorded the right to sue (or "standing") in certain circumstances but only upon joining or attempting to join the patent owners.

In Waterman v. Mackenzie, 138 U.S. 252, 11 S.Ct. 334, 34 L.Ed. 923 (1891), the Supreme Court addressed the question of the right to sue for infringement under a predecessor patent statute. The Court stated that an assignment by the patent owner of the whole of the patent right, or of an undivided part of the right, or of all rights in a specified geographical region, gives an assignee the right to bring an action for infringement in his own name. Any less complete transfer of rights, the Court explained, is a license rather than an assignment. If the patent owner grants only a license,

the title remains in the owner of the patent; and suit must be brought in his name, and never in the name of the licensee alone, unless that is necessary to prevent an absolute failure of justice, as where the patentee is the infringer, and cannot sue himself. Any rights of the licensee must be enforced through or in the name of the owner of the patent, and perhaps, if necessary to protect the rights of all parties, joining the licensee with him as a plaintiff.

Id. at 255, 11 S.Ct. at 335.

Thirty-five years later, in Independent Wireless Tel. Co. v. Radio Corp. of Am., 269 U.S. 459, 46 S.Ct. 166, 70 L.Ed. 357 (1926), the Supreme Court applied the teaching of Waterman in a case in which an exclusive licensee sought to enforce the patent rights against an alleged infringer. The Court rejected the argument that the licensee could sue for infringement without joining the patent owner. "The presence of the owner of the patent as a party is indispensable not only to give jurisdiction under the patent laws," the Court held, "but also, in most cases, to enable the alleged infringer to respond in one action to all claims of infringement for his act, and thus either to defeat all claims in the one action, or by satisfying one adverse decree to bar all subsequent actions." 269 U.S. at 468, 46 S.Ct. at...