Judges: Michel (author), Newman (dissenting), Prost [Appealed from D. Conn., Judge Arterton]

In Tyco Healthcare Group LP v. Ethicon Endo-Surgery, Inc., Nos. 08-1269, -1270 (Fed. Cir. Dec. 7, 2009), the Federal Circuit affirmed a dismissal without prejudice where Tyco Healthcare Group LP (“Tyco Healthcare”) had failed to prove ownership of the asserted patents and thus lacked standing to sue. Because Tyco Healthcare might later show or obtain ownership of the asserted patents, and because Ethicon Endo-Surgery, Inc. (“Ethicon”) would not be unduly prejudiced by a renewed suit, the Court upheld the dismissal without prejudice.

As of March 1999, all necessary rights to enforce the three patents-in-suit resided in U.S. Surgical Corporation (“USSC”). On April 1, 1999, USSC entered into a Contribution Agreement that transferred the patents to Kendall LLP (“Kendall”), except “[a]ny and all patents and patent applications relating to any pending litigation involving USSC.” Slip op. at 2 (alteration in original). Kendall eventually changed its name to Tyco Healthcare. Id.

On the same day that the Contribution Agreement was executed, USSC and Ethicon entered into a Settlement Agreement, whereby the parties agreed to resolve five pending patent litigations and several interference proceedings between them. The Settlement Agreement further granted Ethicon immunity from infringement liability for certain then-existing Ethicon products, and it dismissed the then-pending litigations with prejudice. At the time of these two agreements, the asserted patents in this litigation had not yet issued.

In October 2004, Tyco Healthcare initiated its lawsuit against Ethicon. At trial, Tyco Healthcare produced the Contribution Agreement and provided testimony that the asserted patents were not excluded from the transfer between USSC and Tyco Healthcare. Ethicon then moved for—and the district court granted—JMOL regarding Tyco Healthcare’s lack of standing because Tyco Healthcare purportedly did not own the asserted patents. Tyco Healthcare appealed the dismissal and Ethicon cross-appealed, alleging that the dismissal should have been with prejudice.

“In sum, Tyco Healthcare bore the burden of proving that the patents-in-suit are not ‘related to’ any litigation pending at the time the Contribution Agreement was executed. Tyco Healthcare failed to do this.” Slip op. at 8.  

On appeal, the Federal Circuit concluded that the ownership of the patents-in-suit rested on the correct interpretation of the contractual phrase “related to pending litigation” under Third Circuit law. Finding no evidence to suggest that the parties intended anything other than the “ordinarily broad understanding” of the phrase, the Court construed the phrase to mean that the patents “could not have been asserted in or affected by any litigation pending as of April 1, 1999.” Id. at 6. Because Tyco Healthcare bore the burden of proving that the patents-in-suit were not “related to” any litigation pending at the time the Contribution Agreement was executed, but failed to do so, the Court affirmed the dismissal.

Turning to the nature of the dismissal, the Federal Circuit concluded that the district court did not abuse its discretion in dismissing without prejudice because Tyco Healthcare may become able to cure the ownership deficiency. Moreover, because the ownership issue was not identified to the district court as an issue to be litigated during trial, but was first raised during cross-examination of a witness at trial, the Federal Circuit found no undue prejudice to Ethicon.

In a dissenting opinion, Judge Newman stated that Tyco Healthcare established, and Ethicon did not dispute, that the patents-in-suit were not related to any litigation pending on April 1, 1999, and, thus, the patents were transferred by USSC to Tyco Healthcare in accordance with the Contribution Agreement. Rejecting Ethicon’s theory that all future USSC patents could be encompassed by the Settlement Agreement’s grant of immunity, Judge Newman would have interpreted the Contribution Agreement to effectuate the parties’ intent of complete asset transfer. In Judge Newman’s view, the majority’s reading of the contract disregards the parties’ intent, for Tyco Healthcare would never have agreed to receive USSC’s business assets without also receiving the patents that protected Tyco Healthcare’s use of those assets.