The U.S. Court of Appeals for the Federal Circuit recently held that a license to make a patented article includes an inherent right to have a third party make the article absent express language to the contrary. CoreBrace LLC v. Star Seismic LLC, Case No. 08-1502 (Fed. Cir., May 22, 2009) (Lourie, J.).

CoreBrace owns a patent with claims directed to a brace used in the fabrication of earthquake-resistant steel-framed buildings. Star Seismic (Star) received a non-exclusive license to the patent to “make, use and sell” licensed products. The license also stated that Star cold not “assign, sublicense, or otherwise transfer” its rights to any party except an affiliated, parent or subsidiary company. CoreBrace also reserved “all rights not expressly granted to [Star].” However, the agreement gave Star ownership for any technological improvements “by a third party whose services have been contracted by [Star].”

CoreBrace found out that Star used third-party contractors to make the licensed products, which Star would subsequently use. CoreBrace terminated the license and then sued for patent infringement and breach of the agreement.

Star moved to dismiss the action for failure to state a claim. In granting Star’s motion, the district court reasoned that a patent licensee’s right to “make” an article includes the right to have others do the work connected with the product. CoreBrace appealed.

One of CoreBrace’s arguments was that it retained the “have made” rights, which were not expressly granted and, therefore, retained by CoreBrace under the terms of the license.

Relying on the Court of Claims decision in Carey, the Court held that the right to “make, use, and sell” a product inherently includes the right to have the product made by a third party, absent a clear indication of intent to the contrary. The Court found that Carey held that “a license to produce, use and sell ‘is not restricted to production by the licensee personally or use by him personally or sales by him personally. It permits him to employ others to assist him in the production, and in the use and in the sale of the invention.’…Thus, ‘his license permits him to engage others to do all the work connected with the production of the article for him.’” In view of Carey, the Court reasoned that a “have made” right is implicit in a right to make, use and sell, absent an express contrary intent.

In reviewing the terms of the agreement, the Court failed to find any express language limiting the “have made” right. When addressing CoreBrace’s retention of rights argument, the Court found that CoreBrace failed to show a clear intent to exclude “have made” rights from the license. The Court also found that other provisions of the license appeared to contemplate that Star may have the product made by a third party. For example, the license provided that Star owns any improvements to the technology “by a third party whose services have been contracted by [Star].” In view of these and other circumstances, the Court held that Star did not breach the license by contracting with third parties to have the licensed products made for its own use.

Practice Note: If you intend to have only the licensee “make” the licensed products, be sure to expressly state that in the agreement. In other words, expressly limit the inherent “have made” right.