Propat Intern. Corp. v. Rpost, Inc.

• Decision Date: 04 January 2007
• Docket Number: No. 2006-1270.,No. 2006-1223.,No. 2006-1222.,2006-1222.,2006-1223.,2006-1270.
• Parties: PROPAT INTERNATIONAL CORP., Plaintiff/Counterclaim Defendant-Appellant, and David Fink and Helene Glasser, Counterclaim Defendants, v. RPOST, INC. and RPost US, Inc., Defendant/Counterclaimant-Cross Appellant, and RPost International Limited, Zafar Khan, Kenneth Barton and Terrance Tomkow, Defendants-Cross Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

473 F.3d 1187

PROPAT INTERNATIONAL CORP., Plaintiff/Counterclaim Defendant-Appellant, and David Fink and Helene Glasser, Counterclaim Defendants, v. RPOST, INC. and RPost US, Inc., Defendant/Counterclaimant-Cross Appellant, and RPost International Limited, Zafar Khan, Kenneth Barton and Terrance Tomkow, Defendants-Cross Appellants.

No. 2006-1222.

No. 2006-1223.

No. 2006-1270.

United States Court of Appeals, Federal Circuit.

January 4, 2007.

Timothy W. Johnson, Law Office of Timothy W. Johnson, of Houston, TX, argued for plaintiff/counterclaim defendant-appellant.

Henry Ben-Zvi, Ben-Zvi & Associates, of Santa Monica, California, argued for defendant/counterclaimant-cross appellant and defendants-cross appellants.

Before NEWMAN, MAYER, and BRYSON, Circuit Judges.

BRYSON, Circuit Judge.

This "patent standing" case calls on us to decide once again whether a party has a sufficient ownership interest in a patent to be entitled to sue for infringement. The plaintiff, Propat International Corporation, sued RPost, Inc.; RPost US, Inc.; RPost International Limited; and three individuals (collectively, "RPost") in the United States District Court for the Central District of California. Propat charged RPost with infringing U.S. Patent No. 6,182,219 ("the '219 patent"). That patent, entitled "Apparatus and Method for Authenticating the Dispatch and Contents of Documents," was assigned to Authenticational Technologies Ltd. ("Authentix") by the inventors. After the district court resolved several issues relating to the merits of the lawsuit, the parties filed cross-motions addressing the question whether Propat had standing to bring the action in its own name.

The district court issued an opinion holding that Propat is not the owner of the patent and thus does not have standing to sue. Focusing on a May 2002 agreement between Propat and Authentix, the court ruled that the agreement does not transfer all substantial rights in the patent to Propat but instead merely makes Propat a bare licensee under the patent. Because Propat has no proprietary interest in the patent, the court held that Propat lacks standing to sue infringers even with the patent owner, Authentix, joined as a party-plaintiff. Accordingly, the district court did not rule on Propat's request to join Authentix, but dismissed the action without prejudice.

Following the dismissal, RPost moved for an award of attorney fees and costs. RPost asserted that the case was "exceptional" within the meaning of the fee-shifting provision of the Patent Act, 35 U.S.C. § 285, and that, based on litigation misconduct by Propat, an award of fees and costs was justified under the district court's inherent authority and under 28 U.S.C. §§ 1927 and 1919. The district court issued an opinion analyzing and denying each of RPost's claims.

Propat appeals from the order of dismissal, and RPost cross-appeals from the denial of an award of attorney fees and costs. We affirm the district court's decision that Propat lacks standing to sue for infringement of the '219 patent even with Authentix as an additional party to the action. On the cross-appeal, we affirm the district court's order denying RPost's request for an award of fees and costs.

I

We have addressed the issue of standing in patent cases on a number of occasions. The governing principles are now reasonably clear. The Patent Act provides that "[a] patentee" is entitled to bring a civil action "for infringement of his patent." 35 U.S.C. § 281. The term "patentee" includes "not only the patentee to whom the patent was issued but also the successors in title to the patentee." Id. § 100(d). Those provisions of the Patent Act have been interpreted to require that a suit for infringement of patent rights ordinarily be brought by a party holding legal title to the patent. Sicom Sys. Ltd. v. Agilent Techs., Inc., 427 F.3d 971, 976 (Fed.Cir. 2005); Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1551 (Fed.Cir.1995) (en banc); Abbott Labs. v. Diamedix Corp., 47 F.3d 1128, 1130 (Fed.Cir.1995).

Even if the patentee does not transfer formal legal title, the patentee may effect a transfer of ownership for standing purposes if it conveys all substantial rights in the patent to the transferee. In that event, the transferee is treated as the patentee and has standing to sue in its own name. See, e.g., Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1250 (Fed.Cir. 2000); Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 875 (Fed.Cir.1991).

A

Propat first argues that the May 2002 agreement grants it a sufficient interest in the patent to entitle it to sue for infringement in its own name, without naming Authentix as a co-plaintiff. Because it is undisputed that Authentix is the party with legal title to the patent, Propat is entitled to sue in its own name alone, without Authentix's participation, only if Authentix has transferred to Propat all substantial rights in the patent. In order to determine whether Authentix has done so, we must look to the agreement between the parties and analyze the respective rights allocated to each party under that agreement. See Aspex Eyewear, Inc. v. Miracle Optics, Inc., 434 F.3d 1336, 1340 (Fed.Cir.2006); Mentor H/S, Inc. v Med. Device Alliance, Inc., 240 F.3d 1016, 1017 (Fed.Cir.2001); Vaupel, 944 F.2d at 874.

In relevant summary, the agreement between Propat and Authentix gives Propat the responsibility to license the patent to third parties, to enforce the licensing agreements, and to sue infringers. In exchange, the agreement gives Propat a defined percentage share of the proceeds of the licensing royalties and of any judgment or settlement arising out of litigation. As part of the agreement, Propat undertakes "to consult with and obtain prior approval" from Authentix for the selection of any potential targets for licensing or suit, although the agreement provides that Authentix may not unreasonably withhold or delay such approval. The agreement further provides that Authentix may terminate the agreement if Propat breaches the agreement, becomes bankrupt or insolvent, fails to obtain certain levels of income from the patent, or ceases to be actively engaged in licensing or litigation efforts. The agreement forbids Propat from assigning its rights and obligations under the agreement without the consent of Authentix, which consent Authentix may freely withhold. Finally, the agreement provides that Authentix will consent to be joined as a party to any action brought by Propat if a court requires it to be joined, although in such a case Propat must provide counsel for Authentix and defray all the expenses Authentix may incur in connection with its involvement in the litigation.

The agreement contemplates that Propat will be engaged in licensing and litigation. It does not explicitly address whether Propat enjoys a license to practice the patent. Similarly, it does not explicitly state whether Authentix retains the right to practice the patent.

The parties take diametrically opposing views of the consequences of the agreement for purposes of determining Propat's standing as a plaintiff in this case. Propat argues that the district court was wrong to dismiss the action, because the agreement gives Propat all substantial rights in the patent and thus is the functional equivalent of an assignment of the patent from Authentix. Accordingly, Propat contends that it should be treated as the "patentee" and that it is therefore entitled to bring this action without naming Authentix as a co-plaintiff. RPost, on the other hand, argues not only that Propat is not the "patentee," but also that Propat has no proprietary rights in the patent at all and instead is only a bare licensee. For that reason, RPost argues, Propat has no right to participate in this action as a plaintiff and the district court properly dismissed the action for lack of jurisdiction.

The district court first found that the agreement does not assign to Propat the right to make, use, and sell the patented invention. Instead, the court concluded, Propat "merely has a right to enforce or license other parties to use, manufacture, or sell" the invention. Second, the court concluded that the right granted to Propat with respect to the invention is not exclusive, because Authentix retains the right to seek new patents on the underlying invention and therefore retains an implicit right to use the invention. Finally, the court found that Propat's power to assign its rights under the agreement is entirely subject to Authentix's consent, which "Authentix can withhold ... even arbitrarily." In light of the various rights retained by Authentix, the court found that Propat "was not transferred all substantial rights and, as such, has no standing to sue on its own behalf."

We agree with the district court. Authentix retains sufficient rights in the patent that it cannot be said to have assigned "all substantial rights" in the patent to Propat. To begin with, the agreement expressly provides that Authentix is, and will continue to be, the owner of the patent. The agreement identifies Authentix as the "owner of various technology," including the '219 patent. Moreover, the agreement provides that Authentix is responsible to "maintain any . . . patents [it] owns or controls ... each for its full term," a provision that clearly includes the '219 patent. The responsibility to maintain a patent is one of the obligations that has been recognized by this court as an indication that the party with that obligation has retained an ownership interest in the patent. Mentor H/S, 240 F.3d at 1018.

In addition, Authentix retains an economic interest in the patent and a substantial measure of control over decisions affecting the patent rights. It enjoys an equity interest in the proceeds of licensing and litigation activities, a right to notice of licensing and litigation decisions and the right to veto such decisions as long as the veto...