The Federal Circuit affirmed a decision by Judge Schneider in the Eastern District of Texas to dismiss patent infringement claims by plaintiff Tri-County for lack of standing due to the details of its licensing arrangement with licensee and co-plaintiff Azure Networks.

In 2010, Azure Networks donated the asserted patent to co-plaintiff Tri-County, an Eastern District of Texas charity that provides advocacy for neglected and abused children. Shortly after making the donation, Azure and Tri-County entered into a license agreement that granted back to Azure an exclusive right to practice the invention, as well as the exclusive right to enforce the patent or to sublicense it without Tri-County’s consent. Tri-County retained a right to a portion of litigation or licensing proceeds, a non-exclusive right to practice the patent, and the right to terminate the agreement in the event of a breach. The license to Azure expired two years before the end of the patent term, but Tri-County had the option to renew the agreement in one-year increments.

The defendants argued that Tri-County did not have standing to participate in the lawsuit because Tri-County assigned all substantial rights to the patent to Azure, making it tantamount to a complete assignment. The district court agreed, and the Federal Circuit affirmed. In its decision, the Federal Circuit focused on the fact that Tri-County had transferred the exclusive right to enforce the patent, and did not retain any right to control or veto Azure’s litigation activities. The Federal Circuit acknowledged that under its analysis in Aspex EyewearInc. v. Miracle Optics, 434 F.3d 1336, 1342 (Fed. Cir. 2006), the fact that the license agreement terminated prior to the expiration of the patents can be an indicator that the licensor retained substantial rights in the patents. Nevertheless, the court found Aspex Eyewear distinguishable. Specifically, in Aspex Eyewear there were still eleven years remaining in the Aspex Eyewear patent term after the license expired, whereas here only two years remained after the expiration of the Azure license, and Tri-County could renew the agreement until the end of the patent’s term. 

Azure Networks, LLC v. CSR PLC, 2013-1459 (Fed. Cir. Nov. 4, 2014) [Chen (opinion), Reyna, Mayer (dissenting-in-part)].