Azure Networks, LLC v. CSR PLC

Applying patent licensor-licensee standing law to defendants’ motion to dismiss a plaintiff, the Federal Circuit affirmed the district court’s ruling that a patent owner had transferred sufficient rights to an exclusive licensee that it no longer had the right to file an infringement lawsuit.  Azure Networks, LLC v. CSR PLC, Case No. 13-1459 (Fed. Cir., Nov. 6, 2014) (Chen, J.) (Mayer, J., dissenting-in-part).

After passing through many hands, the patent-in-suit was acquired by Azure Networks, a Texas company located in the U.S. District Court for the Eastern District of Texas.  In 2010, Azure donated the patent-in-suit to Tri-County.  The two companies then executed an exclusive license that transferred back to Azure a number of rights in the patent.  In 2011, Azure and Tri-County jointly filed a patent infringement lawsuit against multiple parties, including CSR, Atheros, Qualcomm, Broadcom, and Marvell Semiconductor.

The defendants moved to dismiss Tri-County from the lawsuit for lack of standing, arguing that Tri-County had transferred all substantial rights in the patent to Azure.  Among the rights transferred were the exclusive, worldwide and transferable right to practice the patent, the full right to enforce and sublicense the patent and the authority to reach settlements without Tri-County’s consent.  Further, Azure could assign any of its rights under the agreement without Tri-County’s consent.  Finally, the agreement specified that Azure had the right, but no obligation, to control future prosecution or pay maintenance fees related to the patent family.  Because the rights transferred were so substantial, defendants argued that Azure was the effective owner and Tri-County had no right to enforce the patent.

Tri-County argued that it had retained substantial rights in the patent, including a share of proceeds from Azure’s litigation and licensing activities, as well as a non-exclusive and non-transferable right to practice the patent.  Further, Tri-County could terminate the agreement under certain conditions, including breach by Azure.  Also, the license agreement would automatically expire two years before expiration of the patents, though Tri-County could extend the agreement.

In analyzing the list of rights transferred to Azure, the Federal Circuit found that the most significant factor was that Tri-County reserved no right to control Azure’s litigation or licensing activities, which the Court’s Propat and Speedplay decisions cited as an indication that a licensor reserved substantial rights in the patent.  Tri-County’s economic interest and non-exclusive right to practice the patent was given little weight by the Court, and even the termination clause for a breach of good faith did not outweigh Tri-County’s inability to veto or direct Azure’s actions.  Finally, the panel majority noted that while the Court in Aspex Eyewear had held that agreements with hard termination dates could show that the licensor retained an ownership interest, because the Azure agreement terminated only two years before expiration of the patent and could be easily renewed for the remainder of the patent’s term, the termination date did not suggest that Tri-County retained ownership.

Accordingly, the Federal Circuit held that Azure was the effective owner of the patent-in-suit, and that because Tri-County was effectively a non-exclusive licensee, it had no standing to join the suit as a co-plaintiff.