In a case that could have ramifications for similar transactions, the Federal Circuit will investigate Tuesday whether a patent owner who grants the ability to sublicense a patent can still prosecute another for infringement.
Uniloc Luxembourg SA has lost a series of district court infringement suits against Motorola Mobility LLC, Apple Inc., and Google LLC in connection with its merger with a Fortress Investment Group subsidiary. When Uniloc failed on a Fortress loan intended to pay for the lawsuits, it triggered a clause in the agreement that gave Fortress the ability to sublicense its patents.
Judges in Delaware and the Northern District of California determined that Uniloc no longer had exclusive rights to the patents and consequently lacked legal standing to sue.
The cases have now been heard by the United States Court of Appeals for the Federal Circuit. A finding on the subject would have an impact on similar types of lawsuit finance arrangements, which have grown in popularity in recent years, attorneys said.
"We hope that the most important thing that comes out of this case is a clear answer on the question of standing in patent law and whether or not someone with some rights to a patent—but not enough rights to exclude from the market—can actually bring suit," said Matt Warren, the founding partner of Warren Lex LLP. "The outcome will very certainly have a significant impact on a number of other large transactions."
Uniloc and its exclusive licensee, Uniloc USA Inc., first filed suit in the District of Delaware in 2018, alleging that Motorola's Android devices that allow users to pair a smartphone with a wearable device infringed on its US Patent No. 6,161,134, which covers receiving phone calls on a smartwatch.
When Uniloc needed litigation cash, Fortress agreed to lend the company $26 million in exchange for a portion of future licencing earnings from its patents. As security, Uniloc granted Fortress a licence in its patent portfolio, allowing Fortress to sublicense the patents if Uniloc failed. According to Warren, the model is identical to that utilised by other patent portfolio owners.
Motorola contended that because Uniloc defaulted on the loan, Fortress' new power to sublicense the invention stripped Uniloc of any exclusive rights in the patent. The claim was dismissed by the United States District Court for the District of Delaware, which agreed with Motorola.
According to its opening brief, Uniloc will argue to the Federal Circuit that standing should not be based on a "conditional (but never-executed) right to sublicense the invention."
According to Warren, Uniloc's scenario demonstrates the "peril of such arrangement" for the patent owner. If the Federal Circuit now sides with Motorola, fresh transactions will require different methods of assuring lenders' security while preserving the corporations' right to defend their patents, he said.
While the Federal Circuit could avoid the issue entirely—Motorola is also arguing that Uniloc is barred from bringing the suit since a court in the Northern District of California had dismissed Uniloc's suit against Apple—attorneys suggested the issue would still come up.
"There's a lot of money at risk, and there's a lot of cases," Warren explained.
These types of licencing agreements are part of a growing litigation finance business. According to a research by Westfleet Advisors, patent litigation attracted 29% of the $2.8 billion that litigation funders committed to new agreements in the US market in 2021, putting the industry's total assets under management at $12.4 billion.
A number of additional lawsuits involving the standing issue are already in the works.
Uniloc claims in its opening brief that the Federal Circuit and other courts have implemented standing standards inconsistently, claiming that courts have "struggled to define what an exclusive licensee is."
"That challenge has been exacerbated by contradictory judgements about the nature and breadth of the patent's authority to exclude," Uniloc wrote in its opening brief. "The resulting body of case law concerning constitutional standing in patent cases is inconsistent and confusing."
The Federal Circuit has decided in some cases that any licence at all negates the exclusionary power and indicates the patent owner lacks standing, but other judgments have gone the opposite way.
"The primary issue here is a lack of clarity in the legislation. There are certain examples that are going the other way." This is one of those occasions when things can go either way."
The case provides a good vehicle for the Federal Circuit to provide clarity on what precedent should be followed following the Supreme Court's decision in Lexmark International Inc. v. Static Control Components Inc.
Lexmark clarified that whether a plaintiff meets the statutory requirements is not a question of standing under Article 3 of the Constitution. However, subordinate courts continue to struggle with applying the correct law.
Two Federal Circuit cases on the subject appear to be at odds: Lone Star Silicon Innovations LLC v. Nanya Tech. Corp. and Schwendimann v. Arkwright Advanced Coating, Inc.
To determine which precedent to adopt, the full Federal Circuit may need to hear the case, or the Supreme Court may need to intervene, according to La Belle.
"This has the potential to be an useful vehicle, but they need to make it obvious to lower courts and litigants what is no longer acceptable law," she added. "There is still a lot of ambiguity in this area.
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