Alfred E. Mann Foundation v. Cochlear Corp., No. 2009-1447 (Fed. Cir. May 14, 2010).

The patents-in-suit disclosed and claimed cochlear implants and related technologies used to improve hearing. Pursuant to an exclusive license agreement, the patentee retained the secondary right to sue to enforce the patents when the exclusive licensee declined to exercise its first right to sue. Having received assurance that the exclusive licensee did not plan to sue an accused infringer, the patentee filed an infringement lawsuit. The district court granted the accused infringer’s motion to dismiss for lack of standing to sue, finding that because the patentee had transferred all substantial rights under the patents to the exclusive licensee, the exclusive licensee should be considered the owner of those patents.

The Federal Circuit reversed, finding that the patentee remained the owner of the patents under the exclusive license agreement. A patentee may transfer all substantial rights to its patents, in which case the transfer is tantamount to an assignment of those patents to the exclusive licensee, conferring standing to sue solely on the licensee. The most important factor in determining whether an exclusive license transfers sufficient rights to render the licensee the owner of the patent is the nature and scope of the licensor’s retained right to sue accused infringers. The licensor’s retention of such right often precludes a finding that all substantial rights were transferred. Here, once the exclusive licensee declined to exercise its right to sue, the patentee’s right to sue and to control the litigation was otherwise unfettered.

The exclusive licensee’s right to grant sublicenses did not render the patentee’s right to sue illusory because any sublicenses granted by the exclusive licensee included a requirement to pay royalties. In addition, it made no difference that the license agreement failed to specify a time within which the exclusive licensee had to decide whether to sue because governing state law provided that where no time was specified only a reasonable amount of time would be allowed.

The Federal Circuit remanded with instructions for the district court to consider whether the exclusive licensee is an indispensable party to the litigation, expressing no opinion as to the proper disposal of that issue.

A copy of the opinion can be found here.