Luminara Worldwide, LLC v. Liown Elecs. Co. Ltd.

• Decision Date: 29 February 2016
• Docket Number: No. 2015–1671.,2015–1671.
• Citation: 814 F.3d 1343
• Parties: LUMINARA WORLDWIDE, LLC, Plaintiff–Appellee v. LIOWN ELECTRONICS CO. LTD., Liown Technologies/Beauty Electronics, LLC, Shenzhen Liown Electronics Co. Ltd., Boston Warehouse Trading Corp., Abbott of England (1981), Ltd., BJ'S Wholesale Club, Inc., Von Maur, Inc., Zulily, Inc., Smart Candle, LLC, Tuesday Morning Corp., The Light Garden, Inc., Central Garden & Pet Company, Defendants–Appellants Ambient Lighting, Inc., Defendant.
• Court: U.S. Court of Appeals — Federal Circuit

814 F.3d 1343

LUMINARA WORLDWIDE, LLC, Plaintiff–Appellee

v. LIOWN ELECTRONICS CO. LTD., Liown Technologies/Beauty Electronics, LLC, Shenzhen Liown Electronics Co. Ltd., Boston Warehouse Trading Corp., Abbott of England (1981), Ltd., BJ'S Wholesale Club, Inc., Von Maur, Inc., Zulily, Inc., Smart Candle, LLC, Tuesday Morning Corp., The Light Garden, Inc., Central Garden & Pet Company, Defendants–AppellantsAmbient Lighting, Inc., Defendant.

No. 2015–1671.

United States Court of Appeals, Federal Circuit.

Feb. 29, 2016.

Jon Wright, Sterne Kessler Goldstein & Fox, PLLC, Washington, DC, argued for plaintiff-appellee. Also represented by David K.S. Cornwell, Richard D. Coller, III ; Courtland Collinson Merrill, Daniel Ryan Hall, Anthony Ostlund Baer & Louwagie P.A., Minneapolis, MN.

Dan L. Bagatell, Perkins Coie LLP, Phoenix, AZ, argued for all appellants. Defendants-appellants Liown Electronics Co. Ltd., Liown Technologies/Beauty Electronics, LLC, Shenzhen Liown Electronics Co. Ltd. also represented by Kenneth J. Halpern, Palo Alto, CA; Joseph P. Reid, Thomas N. Millikan, San Diego, CA.

Alan Gary Carlson, Carlson, Caspers, Vandenburgh, Lindquist & Schuman, P.A., Minneapolis, MN, for defendants-appellants BJ's Wholesale Club, Inc., Central Garden & Pet Company. Also represented by Tara Catherine Norgard.

Before MOORE, O'MALLEY, and TARANTO, Circuit Judges.

MOORE, Circuit Judge.

Appellants Liown Electronics Co.; Shenzhen Liown Electronics Co.; and Liown Technologies/Beauty Electronics, LLC (collectively, "Liown"), and enjoined distributors Boston Warehouse Trading Corp.; Abbott of England (1981), Ltd.; BJ's Wholesale Club., Inc.; Von Maur, Inc.; Zulily, Inc.; Smart Candle, LLC; Tuesday Morning Corp.; Ambient Lighting, Inc.; The Light Garden, Inc.; and Central Garden & Pet Co. (collectively, "Distributors") appeal from the district court's grant of a preliminary injunction barring Liown from supplying Distributors with artificial candle products that infringe Disney Enterprises, Inc.'s U.S. Patent No. 8,696,166. We vacate and remand for further proceedings.

BACKGROUND

The patents asserted in this case—the '166 patent and U.S. Patent Nos. 7,837,355 ; 8,070,319 ; and 8,534,869 —teach improved techniques for making the light from artificial candles flicker like the flames of real candles. These techniques were first developed for the "Haunted Mansion" ride at Disneyland. Disney Enterprises, Inc., a wholly-owned subsidiary of The Walt Disney Company, is the owner of the asserted patents, which claim priority to 2008.

In 2008, Disney Enterprises granted Candella, LLC,¹ a four-year worldwide license to "make, have made, use, sell, offer for [sale], and import" products practicing "Artificial Flame Technology," which was defined to include Disney's patents and know-how relating to "creating a unique artificial flickering flame effect." J.A. 368, 370. In May 2012, Disney Enterprises and Candella renewed the license until 2020 on similar terms. The original terms of the license restricted Candella's rights to the Artificial Flame Technology in several ways. For example, Candella could not assign, sublicense, or transfer ownership of its rights without Disney's consent, nor could Candella sue to enforce the patents or settle litigation without Disney's consent.

The dispute between the parties in this case stems from early 2010, when Candella first approached Liown to manufacture its candles. Negotiations between the companies soon broke down, and Liown subsequently filed a patent application in China on flameless candles. Allegedly, Liown based this application on confidential information about the Artificial Flame Technology it obtained during its negotiations with Candella. In 2012, Liown began selling its flameless candles in the United States.

On October 31, 2012, Disney Enterprises and Candella amended the license agreement to grant Candella more rights, including (1) the right to sublicense its interest in the Artificial Flame Technology according to the terms of the license agreement; (2) the right to assign its interest with Disney's consent, not to be withheld unreasonably; and (3) the right to sue without Disney's consent. J.A. 439–46 ("2012 Amendment"). The license agreement has since been amended three more times, each time to grant Candella more rights in the Artificial Flame Technology. On July 26, 2013, Disney Enterprises and Candella amended the agreement to give Candella the option of extending the agreement in successive periods until six years after the expiration of the last of the licensed patents. On December 20, 2013, Disney Enterprises and Candella amended the agreement to give Candella the right to select and retain counsel to respond to any petition for post grant review or reexamination of the licensed patents. And on September 9, 2014, Disney Enterprises and Candella amended the agreement to give Candella rights to additional patents. We refer to the license agreement, as amended by all four amendments, as the "Amended Agreement."

Two days after the 2012 Amendment, Candella sued Liown for patent infringement. The parties settled, and Liown agreed to stop selling infringing candles in the United States. Following the settlement, Candella and Liown reopened negotiations for Liown to manufacture flameless candles having the Artificial Flame Technology. However, the relationship again deteriorated. Days after receiving its own U.S. patent covering similar artificial flame technology, Liown advised Candella that it would no longer comply with the terms of the settlement agreement. Liown then allegedly began selling its own flameless candles to Candella's exclusive customers based on information it learned about those customers in the period after the settlement proceedings.

Candella again filed suit against Liown, alleging patent infringement, tortious interference, and trademark infringement. After filing this suit, Candella merged into Luminara. Luminara now possesses all of the rights formerly held by Candella.

Shortly after the suit was filed, Liown moved to dismiss for lack of standing. The district court denied Liown's motion, finding that Luminara had both constitutional and prudential standing. Luminara Worldwide, LLC v. Liown Elecs. Co., No. 14–CV–3103 SRN/FLN (D.Minn. Apr. 3, 2015), ECF No. 143; J.A. 1–59 ("Standing Order "). Luminara moved for a preliminary injunction based on Liown's alleged infringement of claim 1 of the '166 patent and Liown's alleged tortious interference with Luminara's customers. The court granted Luminara's motion based on the alleged infringement without reaching the alternative ground of tortious interference. Luminara Worldwide, LLC v. Liown Elecs. Co., No. 14–CV–3103 SRN/FLN, 2015 WL 1967250 (D.Minn. May 1, 2015), ECF No. 147; J.A. 60–114 ("Preliminary Injunction Order "), order clarified by Luminara Worldwide, LLC v. Liown Elecs. Co., No. 14–CV–3103 SRN/FLN, 2015 WL 3559273 (D.Minn. May 27, 2015), ECF No. 210; J.A. 115–48 ("Clarification Order "). Liown appealed, challenging the court's holding that Luminara had standing to bring the suit and its grant of a preliminary injunction. We have jurisdiction under 28 U.S.C. § 1295(a)(1).

DISCUSSION

I. Disney Has Not Retained the Right to License the Patent Through the "Affiliate" Clause

Under our precedent, only parties with exclusionary rights to a patent may bring suit for patent infringement. See Morrow v. Microsoft Corp., 499 F.3d 1332, 1339 (Fed.Cir.2007) ; WiAV Sols. LLC v. Motorola, Inc., 631 F.3d 1257, 1264–65 (Fed.Cir.2010). The Amended Agreement sets out the scope of Candella's rights to the Artificial Flame Technology; thus, we look to it to determine whether Candella had exclusionary rights to the asserted patents at the time this suit was filed. California law governs the interpretation of the Amended Agreement. Under California law, "[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." Cal. Civ.Code § 1636. We review the district court's interpretation of a contract de novo. DVD Copy Control Ass'n v. Kaleidescape, Inc., 176 Cal.App.4th 697, 97 Cal.Rptr.3d 856, 869 (2009).

Liown argues that Candella does not have exclusionary rights to the asserted patents because Disney retained the right to freely license the technology to any entity by creating new Affiliates. In § 2.2 of the Amended Agreement, Disney Enterprises retained the right for its Affiliates to practice the Artificial Flame Technology:

Reservation of Rights. Notwithstanding the exclusive license grant above, Disney expressly reserves for itself and its Affiliates the right throughout the world to make, have made, use, sell, offer for sale and import the Licensed Products, within and outside the Product Categories.

J.A. 422. Thus, whether Candella could bring suit for patent infringement turns on the interpretation of Affiliate in the Amended Agreement. If Disney Enterprises could indeed license any entity to manufacture and sell candles having Artificial Flame Technology, Candella would not have had exclusionary rights to the asserted patents. However, if Disney Enterprises did not retain the effective right to license the Artificial Flame Technology to any entity through the Affiliate provision, Candella would have had exclusionary rights, and therefore could sue to prevent Liown from infringing the asserted patents.

Section 1 of the Amended Agreement defines "Affiliate" as:

"Affiliate " means any entity controlling or controlled by or in common control with a Party, where "control" is defined as the ownership of at least 50% of the equity or beneficial interest of such entity or the right to vote for or appoint a majority of the board of directors or other governing body of such entity. For purposes of this Agreement, a Licensor Affiliate shall include: (1) any other entity with respect to which Licensor or any of its Affiliates has

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