Procter & Gamble Co. v. Paragon Trade Brands, Inc.

• Decision Date: 28 December 1995
• Docket Number: Civil A. No. 94-16 LON.
• Citation: 917 F. Supp. 305
• Court: U.S. District Court — District of Delaware
• Parties: The PROCTER & GAMBLE COMPANY, Plaintiff and Counterclaim Defendant, v. PARAGON TRADE BRANDS, INC., Defendant and Counterclaimant.

917 F. Supp. 305

The PROCTER & GAMBLE COMPANY, Plaintiff and Counterclaim Defendant, v. PARAGON TRADE BRANDS, INC., Defendant and Counterclaimant.

Civil A. No. 94-16 LON.

United States District Court, D. Delaware.

December 28, 1995.

COPYRIGHT MATERIAL OMITTED

Robert H. Richards, III, of Richards, Layton & Finger, Wilmington, Delaware (John F. Sweeney, of counsel); Richard C. Komson and Seth J. Atlas, of Morgan & Finnegan, New York City, Timothy C. Hester and Salvatore G. Rotella, Jr., of Covington & Burling, Washington, DC; for Procter & Gamble Company.

James M. Mulligan, Jr., of Connolly, Bove, Lodge & Hutz, Wilmington, Delaware (Stephen B. Judlowe, of counsel); Porter F. Fleming, Michael F. Hurley, of Hopgood, Calimafde, Kalil & Judlowe, New York City, for Paragon Trade Brands, Inc.

LONGOBARDI, Chief Judge.

I.

The Procter & Gamble Company ("P & G") instituted this action on January 24, 1994, alleging that Paragon Trade Brands, Inc. ("Paragon"), infringed certain P & G patents by making, selling and/or using disposable baby diapers having dual leg cuffs. Paragon filed its Answer and Counterclaims on April 20, 1994. Paragon's Second Counterclaim alleged that P & G infringed upon the Pieniak et al. United States Patent No. 5,098,423 ("'423 Patent"). (Docket Item "D.I." 146 at A154-55). Pending before the court is P & G's Motion for Summary Judgment Dismissing Paragon's Patent Infringement Counterclaim for Lack of Standing (D.I. 144). In addition to a lack of standing, P & G asserts that the counterclaim should be dismissed under Fed.R.Civ.P. 19 for failure to join an indispensable party.

II.

A federal court is obligated to examine its jurisdiction. Standing is a "threshold question in every federal case, determining the power of the court to entertain the suit." Pfizer Inc. v. Elan Pharmaceutical Research Corp., 812 F.Supp. 1352, 1356 (D.Del.1993). Standing cannot be inferred from the averments of the pleadings, Grace v. American Cent. Ins. Co., 109 U.S. 278, 284, 3 S.Ct. 207, 211, 27 L.Ed. 932 (1883), but "must affirmatively appear in the record," Mansfield, C. & L.M.R. Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 511-12, 28 L.Ed. 462 (1884).

The party seeking jurisdiction bears the burden to establish that it is a proper party to invoke judicial resolution of the dispute. FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231, 110 S.Ct. 596, 607-08, 107 L.Ed.2d 603 (1990); Ortho Pharmaceutical Corp. v. Genetics Inst., Inc., 52 F.3d 1026, 1032-33 (Fed.Cir.), cert. denied, ___ U.S. ___, 116 S.Ct. 274, 133 L.Ed.2d 195 (1995). In response to a motion for summary judgment on the issue of standing, the party alleging standing must set forth by affidavit or by other appropriate means "specific facts" to support its standing. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 2136-37, 119 L.Ed.2d 351 (1992).

It is undisputed that on April 20, 1994, Paragon was not the owner of the '423 Patent,¹ but was a sublicensee.² (D.I. 148 at 1); (D.I. 145 at 21). In the counterclaim, Paragon alleged that it was "an exclusive sublicensee under the '423 Patent with respect to the manufacture, use and sale of infant diapers." (D.I. 146 at A154-55).

Paragon does not rely on its sublicense to support its standing.³ Paragon argued in opposition to the pending motion:

At the time of the counterclaim, April 20, 1994, Paragon was an exclusive sublicensee under the '423 patent with an understanding that it would soon become the owner. It did become the owner of the '423 patent by Agreement dated May 4, 1994.⁴ The Agreement and its included Assignment provided for the transfer of the "essential rights" to the '423 patent.

(D.I. 148 at 1) (emphasis in original). Paragon relies on the subsequent assignment to support its standing to maintain its Second Counterclaim for infringement of the '423 Patent.

Paragon makes three arguments in support of its position. First, Paragon asserts that as an assignee of the entire interest in a patent, including the right to recover for past infringement, it has standing to maintain a suit for infringement, regardless of the date its interest was obtained. (D.I. 148 at 10). Second, Paragon argues that even if it had no standing on the date the counterclaim was made, any "defect" in standing was "cured" when it received an assignment with a right to recover for past infringement. (D.I. 148 at 10). Third, Paragon argues that it was the "equitable owner" of the '423 Patent on the day that the counterclaim was filed because by April 20, 1994, "all concerned parties" had agreed to assign their rights in the patent to Paragon. (D.I. 148 at 13).⁵

Paragon's third argument is without merit. An assignment is effective only if it is in writing. 35 U.S.C. § 261; United States v. Solomon, 825 F.2d 1292, 1296 (9th Cir.1987), cert. denied, 484 U.S. 1046, 108 S.Ct. 782, 98 L.Ed.2d 868 (1988) ("in the context of an assignment of a patent, they can agree verbally until the cows come home, and that patent isn't assigned until there's a writing") (quoting the district court). There was no writing assigning the '423 Patent before April 20, 1994. Although under some circumstances a party will be considered the equitable title holder of a patent, Paragon has not been adjudged to be an equitable title holder. Cf. Papazian v. American Steel & Wire Co. of New Jersey, 155 F.Supp. 111 (N.D.Ohio 1957). In any event, equitable ownership does not entitle the party to sue for money damages,⁶ a remedy at law, in an action for infringement. Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1581 (Fed. Cir.1991).

According to 35 U.S.C. § 281, a civil action for patent infringement may be brought by "a patentee." The word "patentee" is defined by statute to "include not only the patentee to whom the patent was issued but also the successors in title to the patentee." 35 U.S.C. § 100(d). The general rule is that a party seeking money damages for patent infringement must have held legal title to the patent during the time of the infringement. Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1579 (Fed.Cir. 1991). When, however, an assignment of a patent is coupled with an assignment of a right of action for past infringements, then the assignee may bring a claim against past infringers. Arachnid, 939 F.2d at 1579 n. 7. Paragon now has an assignment with a right of action for past infringements. (D.I. 146 at A186). If the Second Counterclaim were brought today, there would be no question that Paragon has standing to assert it.

This does not address, however, whether a party claiming infringement must have standing to bring the claim at the time it is pled. That question has been considered in a number of cases. See Switzer Bros., Inc. v. Byrne, 242 F.2d 909 (6th Cir.1957); Valmet Paper Mach., Inc. v. Beloit Corp., 868 F.Supp. 1085 (W.D.Wis.1994); Quiedan Co. v. Central Valley Builders Supply Co., 1993 WL 451503 (N.D.Cal. Oct. 28, 1993), aff'd without op., 31 F.3d 1178 (Fed.Cir.1994); Ciba-Geigy Corp. v. Alza Corp., 804 F.Supp. 614 (D.N.J.1992); Hockerson-Halberstadt, Inc. v. Nike, Inc., 779 F.Supp. 49, 54 (E.D.La.1991); Afros S.p.A. v. Krauss-Maffei Corp., 671 F.Supp. 1402 (D.Del.1987), aff'd without op., 848 F.2d 1244 (Fed.Cir.1988); Clayhill Resources, Ltd. v. MSB Indus., Inc., No. 80 Civ. 11645 (RLC) (S.D.N.Y. Nov. 3, 1980).⁷

Some courts have held that a party's standing to maintain a patent infringement claim is determined by that party's rights on the day the claim was filed. See Switzer Bros., 242 F.2d at 913; Quiedan Co., 1993 WL 451503 at *2; Afros, 671 F.Supp. at 1445; Clayhill Resources, No. 80 Civ. 11645 (RLC), slip op. See also, Arachnid, 939 F.2d at 1579 (rejecting the plaintiff's "Back-to-the-Future" theory of standing). Allowing a subsequent assignment to automatically cure defects in standing at the time of pleading would "impermissibly expand the class of persons able to sue for infringement." Afros, 671 F.Supp. at 1446.

Other cases present compelling policy rationales for the opposite position. Those courts have found that not allowing subsequent developments to cure defects in pleading would be to "exalt form over substance." Valmet, 868 F.Supp. at 1090; Ciba-Geigy, 804 F.Supp. at 637. If the action were dismissed, the party could simply refile the lawsuit. If a subsequent assignee were required to join the previous owner/assignor of the patent as an indispensable party, the court would have to simultaneously dismiss that prior owner/assignor because it would no longer possess any interest in the litigation. Valmet, 868 F.Supp. at 1089.

As a general matter, parties should possess rights before seeking to have them vindicated in court. Allowing a subsequent assignment to automatically cure a standing defect would unjustifiably expand the number of people who are statutorily authorized to sue. Parties could justify the premature initiation of an action by averring to the court that their standing through assignment is imminent. Permitting non-owners and licensees the right to sue, so long as they eventually obtain the rights they seek to have redressed, would enmesh the judiciary in abstract disputes, risk multiple litigation, and provide incentives for parties to obtain assignments in order to expand their arsenal and the scope of litigation. Inevitably, delay and expense would be the order of the day. The court agrees, therefore, that a party must have standing to bring a patent infringement claim at the time it is brought. See Minneapolis & St. Louis R.R. Co. v. Peoria & Pekin Union Ry. Co., 270 U.S. 580, 586, 46 S.Ct. 402, 404-05, 70 L.Ed. 743 (1926) ("jurisdiction of the lower court depends upon the state of things existing at the time the suit was brought.").⁸

An initial defect in standing, however, is remediable. See Hockerson-Halberstadt, 779 F.Supp. at 53 (finding defect remedied by amended complaint). The Federal Rules of Civil Procedure allow, under certain circumstances, for...