Textile Productions, Inc. v. Mead Corp.

• Decision Date: 28 January 1998
• Docket Number: No. 97-1245,97-1245
• Citation: 134 F.3d 1481,45 USPQ2d 1633
• Parties: TEXTILE PRODUCTIONS, INC., Plaintiff-Appellant, v. MEAD CORPORATION and Fiber Trim Sewing Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1481

134 F.3d 1481

45 U.S.P.Q.2d 1633

TEXTILE PRODUCTIONS, INC., Plaintiff-Appellant, v. MEAD CORPORATION and Fiber Trim Sewing Company, Defendants-Appellees.

No. 97-1245.

United States Court of Appeals Federal Circuit.

Jan. 28, 1998.

Rehearing Denied; Suggestion for Rehearing

In Banc Declined March 24, 1998.

Robert Warren Roddis, Attorney, Grosse Pointe Farms, Michigan, argued, for plaintiff-appellant.

Scott A. King, Thompson Hine & Flory LLP, Dayton, Ohio, argued, for defendants-appellees. With him on the brief was Mark P. Levy.

Before LOURIE, Circuit Judge, ARCHER, Senior Circuit Judge, ^* and RADER, Circuit Judge.

RADER, Circuit Judge.

The United States District Court for the Eastern District of Michigan dismissed Textile Production, Inc.'s (Textile's) complaint with prejudice in favor of The Mead Corporation (Mead) and Fiber Trim Sewing Company (Fiber Trim). Because Textile is not an exclusive licensee and therefore has no standing to sue for patent infringement, this court affirms the district court's dismissal of Textile's infringement claim. However, because Textile may have also asserted a claim for breach of contract against Mead, this court vacates the district court's dismissal of the complaint and remands with instructions.

I.

During the late 1980s, employees of Mead and Textile collaborated on solving a problem for Ford Motor Company, one of Mead's customers. During assembly of its cars, Ford needed to pass a large bundle of wires through a narrow opening in the interior control panel and then quickly separate the wires for installation. Employees at Mead and Textile invented a sock-like spandex harness that allowed Ford to perform this operation more efficiently. In October 1989, Textile filed a United States patent application on behalf of the inventors of the harness.

In February 1990, while the patent application was still pending, Textile and Mead executed a General Agreement and a Purchase Agreement. Under the General Agreement, the parties agreed to split the costs of prosecuting the application and to concurrently execute the Purchase Agreement. The General Agreement also contained two other relevant provisions:

5. Upon conclusion of the examination of the PATENT APPLICATION, [Textile] shall assign its entire interest in and to any and all patents derived therefrom to [Mead].

6. Should any aforesaid assigned patent be proposed by [Mead] for reissue or reexamination, or become the subject of litigation, [Mead] shall give reasonable notice to [Textile] and shall allow [Textile] to participate, through its ... counsel, in any such proceeding on any reasonable basis directed to protecting [Textile's] interests therein and in this Agreement. All legal expenses incurred by either party relating to this paragraph shall be shared on an equal basis by both [Textile] and [Mead].

The Purchase Agreement provided that Mead would "purchase" and Textile would "manufacture and supply" 100% of Mead's "requirements" for the wire harness sock product. Textile was to be Mead's "exclusive source" and Mead was to be Textile's "sole customer" for the "PRODUCT." The Purchase Agreement defined the "PRODUCT" as anything "covered within the literal description found in any then currently existing claim" of the pending U.S. patent application "or any U.S. patent which may be granted thereon." The Purchase Agreement also had a "second source contingency" provision. This provision provided:

16. Second Source Contingency. (a) If [Textile] cannot or shall not meet [Mead's] reasonable delivery requirements for the PRODUCT, then [Mead] shall have the right to obtain elsewhere (for the duration of [Textile's] failure to supply) the PRODUCT in the amount of any shortfall in the PRODUCT between what [Textile] can supply and what [Mead] requires; provided however, [Textile] shall be given (i) reasonable notice of [Mead's] intent to seek a second source, and (ii) an opportunity to either expand its own facilities within a reasonable time, or subcontract for the additional required capacity, and thus fully meet [Mead's] demands....

(b) In the event that a customer of [Mead] requires a second source of supply of the PRODUCT, [Mead] has the right to grant the necessary licenses so that the customer shall have the right to obtain the PRODUCT from a source other than [Textile] and [Mead] shall split with [Textile] any royalty fees received from such other source by [Mead]....

The Purchase Agreement set its own term as the greater of (1) three years, (2) the pendency of the U.S. patent application, or (3) the term of any last-to-expire U.S. patent that issued.

On May 21, 1991, the application issued as U.S. Patent No. 5,016,859 ("the '859 patent"). Under the General Agreement, Textile assigned the patent to Mead. The parties performed satisfactorily under the Purchase Agreement until roughly July 1992, when Textile's ownership changed hands. At that point, Mead claims that Ford began to reject Textile's harnesses with increasing frequency. Mead also asserts that Textile did little or nothing to eliminate the defects. Textile responds that it was doing the best it could.

In March 1995, without notifying Textile, Mead contacted Fiber Trim about manufacturing harnesses. Mead purchased part of its requirements from Fiber Trim until September 1995. At that point, Textile discovered that Fiber Trim was manufacturing the harnesses. In the ensuing dispute, Mead notified Textile that it was suspending performance under the Purchase Agreement.

Textile filed suit against Mead and Fiber Trim, alleging that Textile was an exclusive licensee of the '859 patent with an exclusive nationwide license to make the invention and that Mead and Fiber Trim had infringed this right. Textile filed a motion for partial summary judgment of liability for breach of contract against Mead and for patent infringement against both Mead and Fiber Trim. Mead and Fiber Trim filed a motion for summary judgment challenging Textile's standing to assert patent infringement. The district court found that Textile did not have standing to sue for patent infringement as an exclusive licensee, denied all other motions as moot, and dismissed the complaint with prejudice. Textile appeals.

II.

The question of standing to sue for patent infringement is one which this court reviews de novo. See Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1551, 35 USPQ2d 1065, 1074 (Fed.Cir.1995) (in banc). Only a patentee may bring an action for patent infringement. See 35 U.S.C. § 281 (1994) ("A patentee shall have remedy by civil action for infringement of his patent."). Title 35 defines "patentee" as the party to whom the patent issued or any successors in title to the patent. See 35 U.S.C. § 100(d) (1994). A licensee is not entitled to bring suit in its own name as a patentee, unless the licensee holds "all substantial rights" under the patent. See Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 875, 20 USPQ2d 1045, 1048-49 (Fed.Cir.1991). Such a licensee is in effect an "assignee" and therefore a patentee. See id. at 874-75.

Thus, although a patentee has standing to sue in its own name, an exclusive licensee that does not have all substantial rights has standing to sue third parties only as a co-plaintiff with the patentee. See Abbott Lab. v. Diamedix Corp., 47 F.3d 1128, 1130-33, 33 USPQ2d 1771, 1773-75 (Fed.Cir.1995) (holding that a patentee-licensor must be allowed to intervene in a suit brought improperly by an exclusive licensee because the licensee had no standing to bring the suit alone). At least one exception to that rule exists, however: an exclusive licensee that does not have all substantial rights does have standing to sue in his own name when "necessary to prevent an absolute failure of justice, as where the patentee is the infringer, and cannot sue himself." Waterman v. Mackenzie, 138 U.S. 252, 255, 11 S.Ct. 334, 335, 34 L.Ed. 923 (1891); see also Littlefield v. Perry, 88 U.S. (21 Wall.) 205, 223, 22 L.Ed. 577 (1874) (holding that plaintiff was an assignee, but stating that even if he were an exclusive licensee, he could bring suit in his own name, because the patentee was the infringer); Ortho Pharm. Corp. v. Genetics Inst., Inc., 52 F.3d 1026, 1030, 34 USPQ2d 1444, 1447 (Fed.Cir.1995). On the other hand, a bare licensee has no standing at all. See Rite-Hite, 56 F.3d at 1552 (bare licensees have no standing); Ortho, 52 F.3d at 1034.

Determining whether a licensee is an exclusive licensee or a bare licensee is a question of ascertaining the intent of the parties to the license as manifested by the terms of their agreement and examining the substance of the grant. See Ortho, 52 F.3d at 1033-34. The use of the word "exclusive" is not controlling; what matters is the substance of the arrangement. See id. at 1032. Because patent rights are rights to "exclude others," see 35 U.S.C. § 154(a)(1), a licensee is an exclusive licensee only if the patentee has promised, expressly or impliedly, that "others shall be excluded from practicing the invention" within the field covered by the license. Rite-Hite, 56 F.3d at 1552. Put another way, an exclusive license is "a license to practice the invention ... accompanied by the patent owner's promise that others shall be excluded from practicing it within the field of use wherein the licensee is given leave." Western Elec. Co. v. Pacent Reproducer Corp., 42 F.2d 116, 118 (2d Cir.1930). Thus, if a patentee-licensor is free to grant licenses to others, licensees under that patent are not exclusive licensees.

III.

In this case, Textile asserts that it is an exclusive licensee--not an assignee--yet it seeks to bring an infringement action in its own name. Normally, this alone would be sufficient grounds to dismiss Textile's infringement claim. See Abbott Lab., 47 F.3d at 1132. However, Textile invokes the exception outlined above, claiming that although Mead is the patentee, it is also ...