Addressing yet another standing dispute, the U.S. Court of Appeals for the Federal Circuit overturned a dismissal for lack of standing with prejudice, noting the general rule that a dismissal on that basis should ordinarily be without prejudice. University of Pittsburgh v. Varian Medical Systems, Case. Nos. 2008-1441; -1454 (Fed. Cir., June 9, 2009) (Gajarsa, J.).

Scientists at University of Pittsburgh (Pitt) and Carnegie Mellon University (Carnegie Mellon) collaborated on a device for administering radiation therapy. The universities entered into an agreement governing their intellectual property rights and technology transfer procedures. Per the agreement, Pitt commercialized the invention and applied for patents. The inventors assigned their patent rights to Pitt and two patents issued listing Pitt as the assignee.

Pitt subsequently sued Varian Medical Systems (Varian) for patent infringement. Nearly one and one-half years later, Varian moved for summary judgment contending that Pitt lacked standing to sue because Carnegie Mellon was a co-owner of the patents. Pitt opposed the motion and also sought to join Carnegie Mellon. The district court denied Pitt’s motion to join Carnegie Mellon without an opinion and dismissed the patent infringement lawsuit with prejudice. Pitt appealed.

The Federal Circuit held that the dismissal should have been without prejudice. The Court explained that a dismissal for failure to join a necessary and indispensible party is not an adjudication on the merits and thus the dismissal should be without prejudice. When a party fails to join a co-owner in a patent suit, a court has discretion to dismiss the suit, but the court lacks discretion to do so with prejudice. The law universally disfavors dismissing a case with prejudice based on a standing defect, and there is a strong presumption that any such dismissal is improper.

The Federal Circuit further explained that dismissing the case with prejudice was a harsh sanction not justified under the facts. On this issue the Court explained that a dismissal with prejudice is rarely a proper sanction and it should be reserved for cases in which there is a clear record of delay or contumacious conduct by the plaintiff. Factors relevant to a dismissal with prejudice include the degree of the plaintiff’s personal responsibility for the delay, prejudice to the defendant occasioned by the delay, any history that the plaintiff proceeded in a dilatory manner and the effectiveness of sanctions other than dismissal. The record here did not support a conclusion that Pitt knew it should have joined Carnegie Mellon and refused to do so.

Practice Note: This case is one of a long line of recent standing decisions issued by Federal Circuit and the district courts. Standing challenges are becoming common place in patent litigation, particularly in light of the prevalence of the sales and licensing of intellectual property rights as well as joint development agreements. A thorough ownership analysis is an important component of any pre-filing investigation.