Prima Tek II v. A-Roo Co.

• Decision Date: 17 August 2000
• Docket Number: A-ROO
• Parties: (Fed. Cir. 2000) PRIMA TEK II, L.L.C., HIGHLAND SUPPLY CORPORATION, HIGHLAND MANUFACTURING AND SALES COMPANY and PRIMA TEK I, Plaintiffs-Appellees, v.COMPANY (an Ohio Corporation) andCOMPANY (a Texas Corporation), Defendants-Appellants. 99-1581 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1372

222 F.3d 1372 (Fed. Cir. 2000) PRIMA TEK II, L.L.C., HIGHLAND SUPPLY CORPORATION, HIGHLAND MANUFACTURING AND SALES COMPANY and PRIMA TEK I, Plaintiffs-Appellees,
v.
A-ROO COMPANY (an Ohio Corporation) and A-ROO COMPANY (a Texas Corporation), Defendants-Appellants. 99-1581 United States Court of Appeals for the Federal Circuit DECIDED: August 17, 2000

Appealed from: United States District Court for the Southern District of Illinois Judge David R. Herndon

Page 1373

Copyrighted Material Omitted

Page 1374

Joseph P. Titterington, Dunlap, Codding & Rogers, P.C., of Oklahoma City, Oklahoma, argued for plaintiffs-appellees.

Jay R. Campbell, Renner, Otto, Boisselle & Sklar, P.L.L., of Cleveland, Ohio, argued for defendants-appellants. With him on the brief was Gordon D. Kinder.

Before MAYER, Chief Judge, CLEVENGER and GAJARSA, Circuit Judges.

CLEVENGER, Circuit Judge.

This appeal arose from a patent infringement suit brought by Prima Tek II, L.L.C., Highland Supply Corp., Highland Manufacturing and Sales Co., and Prima Tek I, L.L.C., against A-Roo Co. of Ohio and A-Roo Co. of Texas. Appellants A-Roo Co. of Ohio and A-Roo Co. of Texas appeal from the judgment of the United States District Court for the Southern District of Illinois, declaring the case to be exceptional under 35 U.S.C. § 285 due to litigation misconduct, and awarding attorney fees to Appellees. See Prima Tek II, LLC v. A-Roo Co., No. 97-869-DRH (S.D. Ill. Mar. 16, 1999) (Order). On appeal, Appellants argue that Appellees, all of whom are licensees of the patents in suit, lacked standing to sue for patent infringement in the district court without being joined by the patent owner, Southpac International, Inc. Because we agree that Appellees lacked standing to maintain an infringement suit in their own names, we reverse the decision of the district court awarding attorney fees to Appellees.

I

Appellees are licensees of six U.S. patents ("the patents") relating to decorative flower pot sleeves. ¹ The patents are owned by Southpac International, Inc. ("Southpac"), a Cook Islands corporation. In 1995, Southpac entered into a license agreement with Prima Tek I, L.L.C. ("Prima Tek I"), granting to Prima Tek I the exclusive, worldwide right to make, use and sell the products and processes covered by the patents, but only to the extent necessary to grant a license to Prima Tek II, L.L.C. ("Prima Tek II"), to allow Prima Tek II to make, use and sell the patented products and processes. The agreement contained a termination clause whereby the license automatically terminated at the end of an initial two-year term, or at the end of each year thereafter, unless Southpac notified Prima Tek I at least 30 days in advance of its intent to renew the agreement for an additional year. The agreement also included an enforcement clause providing that Prima Tek I "shall have the sole and exclusive right to sue third parties for infringement . . . and

Page 1375

to collect damages for past infringements." Finally, the agreement stated that Southpac "shall be bound by any judgment which may be rendered in any . . . suit with respect to validity, infringement and enforceability of any of the Licensed Patents."

Prima Tek I, itself unable to make, use or sell any products or processes covered by the patents, subsequently transferred those exclusive worldwide rights to Prima Tek II. The agreement between Prima Tek I and Prima Tek II included the same termination and enforcement clauses as the license from Southpac to Prima Tek I; however, it did not contain a provision that Prima Tek I would be bound by any judgment rendered against Prima Tek II. Prima Tek II subsequently licensed to Highland Supply Corp. ("HSC") and Highland Manufacturing and Sales Co. ("HMSC") the right to make, use and sell patented products in the United States, Canada and Mexico. These licenses were subject to the right of Prima Tek II to grant additional licenses in the same territory in exchange for partial royalty payments to HSC and HMSC.

A-Roo Co. of Ohio and A-Roo Co. of Texas (collectively "A-Roo") manufactured and sold various plant sleeve covers and flower pot containers in the United States. Appellees Prima Tek II, HSC, and HMSC ("the original plaintiffs") brought suit against A-Roo in October 1997, alleging infringement of two of the six patents licensed to them by Southpac. The four remaining patents were later added to the suit on A-Roo's motion.

A-Roo asserted several counterclaims, including an allegation that the patents were unenforceable due to inequitable conduct. Initially, A-Roo based its inequitable conduct counterclaim on the purported failure of the applicant, Mr. Weder, to disclose relevant prior art to the U.S. Patent and Trademark Office ("PTO") during prosecution of the patents in suit. Later, A-Roo abandoned this position, claiming that it had mistakenly relied on a copy of the file history that contained a PTO printing error. Thereafter, A-Roo filed an amended answer and counterclaim, alleging that Mr. Weder had intentionally failed to make other required disclosures during prosecution of the patents in suit. The original plaintiffs moved for summary judgment on A-Roo's counterclaims, which the district court granted.

A-Roo also filed two motions to dismiss the suit for lack of standing. First, A-Roo asked that the case be dismissed because the original plaintiffs lacked standing to sue for patent infringement in their own names without joining the patent owner. Second, A-Roo argued that neither HSC nor HMSC had any right to participate as co-plaintiffs because they were bare licensees, rather than exclusive licensees, of the patents in suit.

The district court denied A-Roo's motions to dismiss. First, the court held that Southpac was not a necessary party because it had assigned all substantial rights in the patents to Prima Tek I. Second, the district court rejected A-Roo's argument that HSC and HMSC were bare licensees and therefore had no right to participate in the case. The court concluded that the agreements between Prima Tek II and HSC and HMSC transferred sufficient rights in the patents to give HSC and HMSC standing to sue on their own behalf.

Although the district court rejected both of A-Roo's standing arguments, the court held sua sponte that Prima Tek I was a "necessary party" to the patent infringement suit because the agreement between Prima Tek I and Prima Tek II did not contain a provision, as did the agreement between Southpac and Prima Tek I, that Prima Tek I would be bound by any judgment rendered against Prima Tek II. For

Page 1376

this reason, the district court ordered Prima Tek I joined as an involuntary plaintiff. See Prima Tek II, LLC v. A-Roo Co., No. 97-869-DRH, slip op. at 4 (S.D. Ill. Jan. 7, 1999) (Order) (citingAbbott Labs. v. Diamedix Corp., 47 F.3d 1128, 1132, 33 USPQ2d 1771, 1776 (Fed. Cir. 1995); Independent Wireless Telegraph Co. v. Radio Corp. of Am., 269 U.S. 459 (1926)).

Shortly before trial, A-Roo filed a motion for judgment in which it conceded infringement of the patents in suit, agreed that the patents were not invalid, and agreed to a permanent injunction prohibiting it from manufacturing, selling, or using any infringing products. A-Roo's motion was granted and the district court's final decree entered on January 11, 1999.

Following entry of the final decree, Appellees moved to have the case declared exceptional under 35 U.S.C. § 285, citing litigation misconduct by A-Roo. The district court granted that motion, declaring the case exceptional on the grounds that A-Roo had engaged in vexatious litigation and litigation misconduct. In particular, the court found that A-Roo had misrepresented the basis for its original inequitable conduct counterclaim in answers to the original plaintiffs' interrogatories and in the deposition of Scott Gilbert, president of A-Roo. The district court also found that A-Roo had engaged in "bad faith motion practice" by: (1) moving for a five-month extension of time within 30 days of the close of discovery; (2) filing an emergency motion six weeks after the close of discovery to extend all deadlines twelve months and continue the trial until January 2000; (3) moving to continue trial for three weeks to allow an additional attorney to participate; (4) requesting the court to reconsider the emergency motion to extend deadlines; and (5) moving for entry of judgment in favor of Appellees the day before trial was set to begin.

Because of what the court called "egregious" conduct, and because A-Roo "failed to use reasonable care in assessing the validity of defenses and claims they asserted," the district court held that Appellees had shown by clear and convincing evidence that the case was exceptional under 35 U.S.C. § 285. See Prima Tek II, LLC v. A-Roo Co., No. 97-869-DRH, slip op. at 6 (S.D. Ill. Mar. 16, 1999) (Order). Accordingly, the district court awarded attorney's fees and costs to Appellees in the amount of $368,093.06. See Prima Tek II, LLC v. A-Roo Co., No. 97-869-DRH, slip op. at 2 (S.D. Ill. Sep. 2, 1999).

A-Roo appeals the district court's judgment that this case was exceptional under 35 U.S.C. § 285 and the award of attorney fees and costs to Appellees. We have jurisdiction pursuant to 28 U.S.C. § 1295 (1994).

II

As a threshold issue, we must determine whether any of the Appellees in this suit had standing to maintain an infringement action against A-Roo without joining Southpac--the owner of all six patents in suit. If no party had standing in the district court, then jurisdiction is not proper on appeal. See U.S. Const. Art. III, § 2; Warth v. Seldin, 422 U.S. 490, 517-18 (1975) ("The rules of standing, whether as aspects of the Art. III case-or-controversy requirement or as reflections of prudential considerations defining and limiting the role of the courts, are threshold determinants of the propriety of judicial intervention."). Whether a party...