Sky Technologies LLC v. Sap Ag, 2008-1606.

Decision Date20 August 2009
Docket NumberNo. 2008-1606.,2008-1606.
PartiesSKY TECHNOLOGIES LLC, Plaintiff-Appellee, v. SAP AG and SAP America, Inc., Defendant-Appellant.
CourtU.S. Court of Appeals — Federal Circuit

Alexandra G. White, Susman Godfrey L.L.P., of Houston, TX, argued for plaintiff-appellee. With her on the brief were Brian D. Melton, Max L. Tribble, Jr. and Anne Mullins.

Paul S. Grewal, Howrey LLP, Cupertino, CA, argued for defendant-appellant. With him on the brief were Lloyd R. Day, Jr., Robert M. Galvin and Renee DuBord Brown. Of counsel was Sriranga Veeraraghaven.

Before MICHEL, Chief Judge, BRYSON, Circuit Judge, and SPENCER, Chief District.

SPENCER, Chief District Judge.

Appellants SAP AG and SAP America, Inc. ("SAP") filed an interlocutory appeal from the judgment of the United States District Court for the Eastern District of Texas finding that Sky Technologies LLC has standing to bring a patent infringement suit in the district court. Because the district court correctly relied on the holding in Akazawa v. Link New Technology International, Inc., 520 F.3d 1354 (Fed.Cir.2008), to determine that patent ownership was properly transferred by operation of state foreclosure law, giving Appellee clear title to the patents-in-suit and therefore standing in the underlying case, we affirm.

I. BACKGROUND

Jeffrey Conklin ("Conklin") founded TradeAccess, Inc. ("TradeAccess") in 1996. Conklin, along with other inventors, obtained a portfolio of patents, which are the subject of this suit.1 Conklin and the other inventors assigned all of their "right[s], title[s], and interest together with the benefits and privileges in and to said inventions and discoveries" to TradeAccess. These assignments were recorded with the United States Patent and Trademark Office ("PTO"). TradeAccess later changed its name to Ozro, Inc. ("Ozro").

On April 2, 2001, Ozro, the Grantor, executed an Intellectual Property Security Agreement with Silicon Valley Bank ("SVB") ("SVB Agreement"), granting SVB a "security interest in all of Grantor's right, title, and interest, whether presently existing or hereafter acquired in, to and under all of the Collateral." The Collateral included the patents-in-suit.2 The SVB Agreement was filed with the PTO on April 2, 2001. On April 3, 2001, Ozro executed a similar security agreement with Cross Atlantic Capital Partners, Inc. ("XACP") ("XACP Agreement"), for the benefit of the XACP Entities.3 The XACP Agreement contained virtually identical language as the SVB Agreement. Ozro used both Agreements to secure loans, and, in the event of default by Ozro, both parties had "the right to exercise all the remedies of a secured party upon such default under the Massachusetts UCC," including the right

(i) to take possession of all or any portion of the Intellectual Property Collateral, (ii) to sell, lease, or otherwise dispose of any or all of the Intellectual Property Collateral ... and (iii) to exercise all or any of the rights, remedies, powers, privileges and discretions under all or any of the documents relating to the Secured Obligations.

Moreover, in the event of default, Ozro would be required to "assemble the Intellectual Property Collateral and any tangible property in which [SVB or XACP] has a security interest and to make it available to [SVB or XACP]." The XACP Agreement also contained a specific provision providing for disposition of the Intellectual Property Collateral at a public or private sale, should default occur, and permitted XACP to purchase the Collateral at the public sale, should it wish to do so.

In December 2002, SVB assigned its security interest to XACP through a Non-Recourse Assignment, giving XACP all of the "right, title, and interest" formerly held by SVB. This Assignment was recorded with the PTO; at that point, XACP held the security interest in all of the patents-in-suit.

Ozro defaulted on its loan obligations and XACP foreclosed on the patents. On February 18, 2003, XACP issued a foreclosure notice ("Notice") to all of Ozro's creditors, inventors, and counsel. The Notice identified the patents-in-suit as those to be sold at public auction.

In the meantime, Conklin started a new company, Whitelight Technology, later known as Sky Technologies LLC ("Sky"). Conklin entered into negotiations with XACP to transfer ownership of the patents-in-suit to Sky. On June 4, 2003, XACP and Conklin signed a Settlement Agreement stating that XACP:

shall use [its] best efforts to obtain title to the Intellectual Property [including the patents-in-suit] for purposes of a transfer from [XACP] to [Sky] by selling all of [XACP]'s rights in and to the Secured Intellectual Property by Public Auction within sixty (60) days after the Effective Date.... At the Public Auction, [XACP] will credit bid up to $4,031,844 as may be required to purchase the Intellectual Property, including but not limited to the right to sue for past infringement or misappropriation of the Patents, covered by security interest held by [XACP].

To the extent that portions of the Intellectual Property are not subject to the security interests held by [XACP] ... [XACP] and Conklin agree to use their best efforts to acquire such assets from Ozro to be held by [Sky] without further consideration payable by Conklin or XACP.4

Both XACP and Jeffrey Conklin, as an individual, signed the Settlement Agreement. Conklin also signed the document as Manager of Whitelight Technology.

On July 14, 2003, XACP foreclosed on its security interests at public auction. The security interest formerly held by SVB and subsequently assigned to XACP was sold first, and then XACP foreclosed on its own security interest. XACP was the only bidder for both sales and purchased all of the assets. On July 22, 2003, pursuant to the Settlement Agreement, XACP assigned all of its "right[s], title, and interest in" the patents-in-suit to Sky by a written assignment ("Sky Assignment"). At no point after foreclosure did Ozro execute a written agreement assigning all of its rights, title, or interests in the patents to XACP.

On October 17, 2006, Sky filed a patent infringement suit against SAP in the United States District Court for the Eastern District of Texas. On January 4, 2008, SAP moved to dismiss Sky's Complaint for lack of standing. On March 20, 2008, the district court requested supplemental briefings from the parties to discuss whether the SVB and XACP Agreements alone granted substantial rights, or whether the security agreements transferred title upon default of the debtor.

On June 4, 2008, the district court, relying on this court's opinion in Akazawa, held the patents-in-suit were transferred from Ozro to XACP through the July 14, 2003 foreclosure proceedings. Because XACP properly complied with the Massachusetts Uniform Commercial Code ("UCC") foreclosure requirements by placing the patent collateral up for sale at a public auction and notifying Ozro of the sale, the district court held title was transferred on July 14, 2003, the date of the foreclosure. For this reason, when XACP assigned the patents-in-suit to Sky on July 22, 2003, Sky became vested with all rights, title, and interest in the patents. Thus, the chain-of-title had not been broken from Ozro to Sky, and Sky was declared the proper title-holder of the patents-insuit, giving Sky standing to bring the patent infringement suit.

SAP filed a Motion for Reconsideration and/or Certification of Question for Interlocutory Appeal on July 15, 2008. The district court denied the Motion for Reconsideration because SAP failed to raise any new argument or present new evidence. However, the district court found that "substantial grounds for difference of opinion exist regarding the question of whether a transfer of title through operation of law without a written assignment may apply in situations that do not involve heirs or probate law." The district court granted SAP's Motion for Certification of Question for Interlocutory Appeal. This appeal followed. We have jurisdiction pursuant to 28 U.S.C. § 1292(b).

II. DISCUSSION
A. Standard of Review

An Article III standing challenge is a question of law, which this court reviews de novo. Akazawa, 520 F.3d at 1355 (citing Prima Tek II, L.L.C. v. A-Roo Co., 222 F.3d 1372, 1376 (Fed.Cir.2000)). As this matter is before the court on an interlocutory appeal, our jurisdiction "applies to the order certified to the court of appeals, and is not tied to the particular question formulated by the district court." Yamaha Motor Corp. v. Calhoun, 516 U.S. 199, 205, 116 S.Ct. 619, 133 L.Ed.2d 578 (1996) (finding that the court is limited by the certified order, but may consider all issues discussed within that order) (emphasis omitted).

B. Valid Transfer of Patent Title through Operation of Law

In order to seek damages for infringement of a patent, a party must have standing at the inception of the lawsuit. Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1579 (Fed.Cir.1991). A party that has been granted all substantial rights under the patent, "regardless of how the parties characterize the transaction that conveyed those rights," is considered to have legal title, and therefore standing. Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1249-50 (Fed.Cir.2000). Thus, it is the "substance of what was granted" that determines the rights in the patent, not the form. Id. at 1250; Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 873-76 (Fed.Cir. 1991). In the present case, the central question is whether XACP had legal right, title, and interest in the patents-in-suit to transfer all of those rights to Sky, thereby providing Sky with standing to bring the underlying infringement claim. Appellants contend that because no writing exists transferring the patents-in-suit to XACP, Sky did not obtain legal title from XACP, and therefore does not have standing in this matter. Appellee disagrees, and argues that Akazawa permits transfers of patent...

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