CoreBrace, LLC v. Star Seismic LLC (Fed. Cir. 2009)

A patent license including the right to “make, use, or sell” inherently includes the right for a third party to manufacture the product unless expressly prohibited, according to the Federal Circuit.

In January of 2008, CoreBrace sued Star Seismic for breach of a patent license agreement and for patent infringement. The patent at issue in the case was U.S. Patent 7,188,452 (the ’452 patent), which is directed to a brace for use in the fabrication of earthquakeresistant steel-framed structures. In June 2007, the inventor and Star Seismic entered into a non-exclusive license agreement by which Star Seismic was granted the non-exclusive right to “make, use, and sell” the licensed products. The non-exclusive license did not explicitly provide for the right to have a licensed product manufactured by a third party. The license did stipulate, however, that Star Seismic could not “assign, sublicense, or otherwise transfer” its rights to any party except an affiliated parent or subsidiary company. The inventor later transferred his interest in the ’452 patent to CoreBrace.

Star Seismic contracted for a third party to manufacture a licensed product for its own use. CoreBrace found this practice to be a breach of the non-exclusive license because of the involvement of the third party. CoreBrace terminated Star Seismic’s license pursuant to a provision in the license that allows for termination in the event of breach, and filed suit in the U.S. District Court for the District of Utah for breach of license and patent infringement. Star Seismic moved to dismiss the complaint for failure to state a claim, and the district court granted Star Seismic’s motion.

The district court found that a “make, use, or sell” provision inherently includes a right to have the product made by a third party, absent a clear indication to the contrary. The court further reasoned that, even where a contract includes the prohibition of sublicensing, as is the case here, third-party manufacturing rights are granted unless they are expressly prohibited. The court further reasoned that CoreBrace did not properly follow the termination clause in the license because the license’s termination provision required CoreBrace to provide a 30-day notice before termination. The court concluded that, since the license was not breached or properly terminated, Star Seismic could not have infringed the patent as alleged.

On appeal, CoreBrace argued that the district court erred because the license reserved all rights to CoreBrace not expressly granted, and the right for third-party manufacturing was not expressly granted. CoreBrace further argued that third-party manufacturing rights are not inherent in a “make, use, or sell” agreement.

The Federal Circuit applied general rules of contract law, since no Utah Supreme Court case had addressed the scope of a “make, use, or sell” license in this context. The court applied Carey v. United States from the Court of Claims, and held that a license to “make, use, or sell” inherently includes the right to have the product made by a third party, absent express contrary intent. The court found CoreBrace’s arguments to be unpersuasive, and affirmed the district court’s grant of dismissal of the case for failure to state a claim.

Practice Tip: When creating or evaluating a patent license, remember to explicitly state prohibited practices, especially with regard to sublicensing and third-party involvement.