Diamond Coating Techs., LLC v. Hyundai Motor Am., s. 2015–1844

• Citation: 823 F.3d 615,119 U.S.P.Q.2d 1196
• Decision Date: 17 May 2016
• Docket Number: Nos. 2015–1844,2015–1861.,s. 2015–1844
• Parties: DIAMOND COATING TECHNOLOGIES, LLC, Plaintiff–Appellant Federal–Mogul Corporation, Third Party Defendant v. HYUNDAI MOTOR AMERICA, Hyundai Motor Company, Kia Motors America, Inc., Kia Motors Company, Nissan North America, Inc., Nissan Motor Co. Ltd., Defendants–Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

823 F.3d 615

119 U.S.P.Q.2d 1196

DIAMOND COATING TECHNOLOGIES, LLC, Plaintiff–AppellantFederal–Mogul Corporation, Third Party Defendant

v.HYUNDAI MOTOR AMERICA, Hyundai Motor Company, Kia Motors America, Inc., Kia Motors Company, Nissan North America, Inc., Nissan Motor Co. Ltd., Defendants–Appellees.

Nos. 2015–1844

2015–1861.

United States Court of Appeals, Federal Circuit.

May 17, 2016.

Joseph Samuel Grinstein, Susman Godfrey LLP, Houston, TX, argued for plaintiff-appellant. Also represented by Colin Michael Watterson; Oleg Elkhunovich, Kathryn Hoek, Marc M. Seltzer, Los Angeles, CA.

Reginald J. Hill, Jenner & Block LLP, Chicago, IL, argued for all defendants-appellees. Defendants-appellees Nissan North America, Inc., Nissan Motor Co. Ltd. also represented by Peter J. Brennan, Chad J. Ray ; Adam G. Unikowsky, Washington, DC.

Daniel Tallitsch, Baker & McKenzie LLP, Chicago, IL, for defendants-appellees Hyundai Motor America, Hyundai Motor Company, Kia Motors America, Inc., Kia Motors Company. Also represented by D. James Pak, San Francisco, CA.

Before WALLACH, BRYSON, and TARANTO, Circuit Judges.

WALLACH, Circuit Judge.

Appellant Diamond Coating Technologies, LLC (“Diamond”) sued Appellees Hyundai Motor America, Hyundai Motor Company, Kia Motors America, Inc., Kia Motors Company, Nissan North America, Inc., and Nissan Motor Co. Ltd. (collectively, “Appellees”) in the United States District Court for the Central District of California (“District Court”) alleging infringement of U.S. Patent Nos. 6,066,399 and 6,354,008 (together, the “patents-in-suit”). The District Court dismissed the actions because it found that agreements between Diamond and Sanyo Electric Co., Ltd. (“Sanyo”), the original assignee of the patents-in-suit, did not confer patentee status on Diamond, allowing Diamond to sue Appellees without joining Sanyo. Diamond Coating Techs., LLC v. Hyundai Motor Am., Nos. 8:13–cv–01480–MRP, 8:13–cv–01481–MRP(DFM), 2015 WL 2088892, at *6 (C.D.Cal. Apr. 1, 2015). The District Court subsequently held that nunc pro tunc agreements executed by Diamond and Sanyo after its decision in Diamond did not affect its determination. J.A. 12 (order denying reconsideration).

Diamond appeals the District Court's dismissals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1) (2012). For the reasons provided below, we affirm.

Discussion

I. Standard of Review

Whether a party is a patentee able to sue another for patent infringement raises “a question of law that this court reviews de novo, applying Federal Circuit precedent.” WiAV Sols. LLC v. Motorola, Inc., 631 F.3d 1257, 1263 (Fed.Cir.2010) (citation omitted).

II. Diamond Cannot Sue Alone Unless It Received All Substantial Rights in the Patents–in–Suit

“A patentee shall have remedy by civil action for infringement of his patent.” 35 U.S.C. § 281 (2012) (emphasis added). A “ ‘patentee’ includes not only the patentee to whom the patent was issued but also the successors in title to the patentee.” Id. § 100(d). A party may become the successor-in-title to the patentee. Id. § 261, ¶ 2 (“[P]atents, or any interest therein, shall be assignable in law by an instrument in writing.”).

In 2011, Diamond and Sanyo signed the Patent Assignment and Transfer Agreement (“PATA”) (J.A. 199–232) and the Ancillary Agreement (J.A. 246–56).¹ When the patents-in-suit issued, the inventors assigned the patents to Sanyo. J.A. 82, 141. Sanyo then conveyed to Diamond various rights to and interests in the patents-in-suit via the PATA. J.A. 199–232.

Diamond alleges the PATA provides Diamond with “legal title [to] the patents-in-suit,” Appellant's Br. 14, such that it is the successor-in-title to the patents-in-suit, see id. at 16–17. Because it is the successor-in-title to the patents-in-suit, Diamond continues, it meets the definition of “patentee” under 35 U.S.C. § 281. See id. And because it is a patentee under § 281, Diamond argues that it may sue Appellees without joining Sanyo. Id.

Agreements transferring patent rights occur by assignment or license. “An assignment of patent rights operates to transfer title to the patent, while a license leaves title in the patent owner” and transfers something less than full title and rights. Minco, Inc. v. Combustion Eng'g, Inc., 95 F.3d 1109, 1116 (Fed.Cir.1996) (citation omitted). “To create an assignment, a contract must transfer: (1) the entire exclusive patent right, (2) an undivided interest ^{[2 ]} in the patent rights, or (3) the entire exclusive right within any geographical region of the United States.” Id. at 1117 (citation omitted). “An agreement that does not transfer one of these three interests is merely a license.” Id. (citation omitted).

We treat an agreement granting patent rights as a contract and interpret its terms consistent with the choice of law provision in the agreement in question. See Alfred E. Mann Found. for Sci. Research v. Cochlear Corp., 604 F.3d 1354, 1359 (Fed.Cir.2010). The PATA states that New York law governs the interpretation of its terms, J.A. 219, and under that law we review the District Court's interpretation of the PATA de novo, Dreisinger v. Teglasi, 130 A.D.3d 524, 13 N.Y.S.3d 432, 435 (2015).

In this case, Diamond asserts “patentee” status only as the alleged recipient of “the entire exclusive patent right” (not an undivided interest or a geographically limited entire exclusive right). On its face, “the entire exclusive patent right” must include all substantial rights in the patent. We have not allowed labels to control by treating bare formalities of “title” transfer as sufficient to determine that an “assignment” of the entire exclusive right has occurred. Rather, we have explained that, “[t]o determine whether a provision in an agreement constitutes an assignment or license, one must ... examine the substance of what was granted.” Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 874 (Fed.Cir.1991) ; see Waterman v. Mackenzie, 138 U.S. 252, 256, 11 S.Ct. 334, 34 L.Ed. 923 (1891) ; Prima Tek II, L.L.C. v. A–Roo Co., 222 F.3d 1372, 1378 (Fed.Cir.2000).

We therefore must ask whether Diamond received all substantial rights in the patents-in-suit or, instead, whether Sanyo retained substantial rights. Unless Diamond received all substantial rights in the patents-in-suit at the time it filed suit in the District Court, it was not a “patentee” (allegedly without a joint owner). If Diamond was not a patentee, it could not bring this suit by itself. And since Diamond did not take the opportunity provided by the District Court to join Sanyo, the District Court properly dismissed the suit. See, e.g., Alfred E. Mann, 604 F.3d at 1360.

III. At the Time of Suit, Diamond Did Not Have All Substantial Rights in the Patents–in–Suit

The District Court held that the PATA did not convey all substantial rights in the patents-in-suit to Diamond. Diamond, 2015 WL 2088892, at *5–6. In particular, it held that the following terms of the PATA weighed against finding a transfer of substantial rights: (1) Diamond could not assign the PATA to another party without Sanyo's consent; (2) Sanyo retains an economic interest in future proceeds, including any that arise from infringement litigation; (3) “Sanyo retains a license to make, use, and sell products covered by the patents-in-suit”; and (4) “Sanyo retains significant control over the decision to enforce the patents” because the PATA “condition[s] enforcement on consideration of the best interests of [Diamond] and Sanyo.” Id. at *5 (internal quotation marks and citation omitted).

Diamond challenges these findings.³ It argues that “[t]he PATA vests [Diamond] with the sole right to exclude others,” Appellant's Br. 19; “[n]othing in the PATA divests [Diamond]'s sole right to sue,” id. at 21; “[Diamond] could assign or sell the patents-in-suit,” id. at 23; “Sanyo's economic interest did not deprive” Diamond of patentee status, id. at 30; “Sanyo's non-exclusive license did not affect” Diamond's patentee status, id. at 31; and “Sanyo did not control [Diamond]'s ability to enforce the patents-in-suit,” id. at 33. Thus, Diamond contends that the PATA transferred to it all substantial rights in the patents-in-suit. Id. at 12.

We need not resolve all of Diamond's questions because two characteristics of the PATA resolve the issue before us. We “have never ... establish[ed] a complete list of the rights” that “must be examined to determine whether a [patentee] has transferred away sufficient rights to render an[other party] ... the owner of a patent.” Alfred E. Mann, 604 F.3d at 1360. However, we have observed that (1) “the exclusive right to make, use, and sell ... is vitally important, ” and (2) “the nature and scope of the [patentee's] retained right to sue accused infringers [and license the patent are] the most important factor[s] in determining whether an [agreement] ... transfers sufficient rights to render the [other party] the owner of the patent.” Id. at 1360–61 (emphasis added). We examine each of these issues in turn.

With respect to the first, Diamond does not possess sufficient rights to make, use, or sell the patented invention. We have held that a “licensor's retention of a limited right to develop and market the patented invention indicates that the licensee failed to acquire all substantial rights.” Fieldturf, Inc. v. Sw. Recreational Indus., Inc., 357 F.3d 1266, 1269 (Fed.Cir.2004) (citation omitted). Sanyo retains a right and license to make, use, and sell products covered by the patents-in-suit. Section 2.4(a) of the PATA provides Sanyo with “a world-wide, royalty-free, non-exclusive, non-sublicensable, non-transferable ... right and license ... to practice the methods and to make, have made, use, distribute, lease, sell, offer for sale, import, export, develop and otherwise dispose of and exploit any” products covered by the patents-in-suit, including any “foundry ^{[4 ]} or contract manufacturing activities ... that [Sanyo] ... currently undertake[s] ... or...