Recent Federal Circuit Developments in Patent Licensing

Patent licenses lie at the intersection of contract and patent law. It is thus critical for drafters of patent licenses to not only keep up with key commercial case law, but also patent-related case law from the Federal Circuit. Importantly, this Federal Circuit case law is often highly nuanced and can lead to unexpected results. Without a strong working knowledge of these cases and what they hold, licensors and licensees can unwittingly cut short the effective term of unlicensed patents, permit infringement of patents that appear to be excluded from the license, and create potentially insurmountable hurdles to bringing claims against unlicensed actors. This article summarizes three key legal developments announced by the Federal Circuit in 2020.

1. Exclusive licensees can inadvertently reduce the term of their independent patents

In a case of first impression, the Federal Circuit recently ruled that an exclusive license agreement may cut short the term of the licensee’s independent patents based on obviousness-type double patenting (“OTDP”) in view of the licensor’s patents. More specifically, if the exclusive license qualifies as “tantamount” to an assignment, the licensee will stand in the shoes of the patent owner licensor, whose relevant claims will qualify as prior art against the licensee’s other patents for OTDP purposes.

In Immunex Corp. v. Sandoz Inc., 964 F.3d 1049, 1056 (Fed. Cir. 2020), the Federal Circuit, in a 2-1 decision in July 2020, held that the exclusive license in question did not rise to the level of an assignment and OTDP did not apply. The majority borrowed the “all substantial rights” test used in a standing analysis to determine whether the license was “tantamount” to an assignment. Id. at 1060. Under that test, the court considers the totality of the circumstances to determine whether the licensee possessed all substantial rights in the patent—mainly the right of enforcement and future alienation (e.g., assignment of the license and sub-licensing). Id.

In concluding the license was not tantamount to an assignment, the majority relied on the licensor’s retention of the right to enforce the patents and to disapprove of the assignment of the licensee’s interests to third parties under certain circumstances. According to the dissent, however, the licensor’s retained rights were illusory because the licensor was obligated to assign the patents to the licensee at its request. Id. at 1069-70 (Reyna, J., dissenting). The dissent would, therefore, have applied OTDP to the licensee’s later-developed patents.

License drafters and litigants must consider the risk that exclusively licensed patents may qualify as OTDP references against a licensee’s later-developed patented technology. This is especially important in the life science arena where later patents hold the key to market exclusivity. If an exclusive license is truly the intent of the parties, drafters seeking to avoid the Immunex dissent should consider stating what substantial rights have been reserved in a way that meaningfully prevents the licensee from completely exercising the rights of enforcement and alienation. Entities may also wish to consider provisions stating that the parties do not intend to create an assignment or transfer all substantial rights.

2. Patentees can create an unanticipated implied license

Patent licensors must recognize that the Federal Circuit routinely grants implied licenses to unlicensed continuations, more narrow continuations in-part and reissues—even in the face of general exclusions of implied license rights.

In Cheetah Omni LLC v. AT&T Services, Inc., 949 F.3d 691 (Fed. Cir. 2020), the patentee sued defendants for infringement of U.S. Patent No. 7,522,836 (the “’836 patent). The patentee had previously licensed U.S. Patent No. 7,339,714 (the “’714 patent”) and “all parents, provisionals, substitutes, renewals, continuations, reissues, oppositions, continued examinations, reexaminations, and extensions of” the ’714 patent. Id. at 694. Thus, although the parent of the ’714 patent was expressly licensed, continuations of that parent (i.e., the ’836 patent) were not. As shown below, the parent of the ’714 patent was also the grandparent of the ’836 patent.

Even though the ’836 patent was not expressly licensed, the Federal Circuit held that the ’836 patent was impliedly licensed because it “disclosed the same inventions as the licensed patent.”Id. at 695.

The February 2020 Cheetah decision builds on a line of Federal Circuit cases creating implied licenses based on legal estoppel. These cases find legal estoppel when a patentee licenses a patent, receives valuable consideration in exchange, and then seeks to derogate from the rights granted.¹ In TransCore v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009), the Federal Circuit found an implied license by legal estoppel for a continuation of an expressly licensed patent even though the express license stated that it would not create any “implied license or future release whatsoever.” As later cases explained, “allowing the patent holder to sue on subsequent patents, when those later patents contain the same inventive subject matter that was licensed, risks derogating rights for which the licensee paid consideration.” E.g., Intel Corp. v. Negotiated Data Solutions, Inc., 703 F.3d 1360, 1366 (Fed. Cir. 2012).

But where a licensee seeks implied rights to patents outside the licensed patent family, i.e, patents that are not continuations, continuations in-part or reissues, legal estoppel does not apply. See Endo Pharm. Inc. v. Actavis, Inc., 746 F.3d 1371, 1378 (Fed. Cir. 2014). The rationale here is that such unlicensed patents do not disclose the same inventive subjective matter that was licensed.

These cases reveal important takeaways. First, courts can and often will impose an implied license to all continuations, broader continuations-in-part, and reissues even in the face of a general exclusion of unlicensed patents. To increase the likelihood that a court will exclude such patents, the license should include an express disclaimer with specific application or patent numbers. Second, although implied rights may be less likely to attach to patents outside the licensed family, licensors should nonetheless include express exclusions wherever possible. In all cases, patent licensors should survey the scope of their existing and planned applications and patents before entering a license to avoid giving away more than anticipated.

3. Gensetix v. Baylor: Pitfalls of state university licenses

A licensor’s promise in an exclusive patent license to “cooperate fully” in lawsuits to enforce the licensed patents will not permit involuntary joinder of the licensor where the licensor is a state university that has not waived its sovereign immunity.

In Gensetix, Inc. v. Bd. of Regents of Univ. of Texas Sys., 966 F.3d 1316 (Fed. Cir. 2020), Gensetix exclusively licensed patents for treating cancer from the University of Texas (“UT”). Under the license, Gensetix was required to enforce UT’s patents at its own expense, and UT was required to “fully cooperate” in those lawsuits. Id. at 1319. The parties agreed, however, that nothing the agreement would be deemed a waiver of UT’s sovereign immunity. Id. After Gensetix sued Baylor University for patent infringement, UT refused to voluntarily join the suit as co-plaintiff. Id. The District Court determined that UT was a necessary party under Rule 19 and dismissed the case after determining UT’s sovereign immunity barred its involuntary joinder.

In July 2020, a split Federal Circuit panel affirmed, holding that sovereign immunity precluded involuntary joinder of the licensor. According to the majority, the cooperation clause was “of no moment.” The Federal Circuit did, however, allow the suit to proceed in Gensetix’s name alone based on “equity and good conscience.” The Court denied en banc review.

The Gensetix decision is important to licensors and licensees alike. As in Gensetix, licensors may find their patents subject to litigation without their consent. Accordingly, licensors may wish to include narrow field of use restrictions or require permission before settlement of any patent lawsuits. Licensees, on the other hand, should weigh whether to negotiate for sovereigns to waive their immunity with respect to joinder in patent actions. A license without a waiver should account for the potential loss in value to the licensee if the State refuses to join as a voluntary plaintiff.

Reference

1. The Federal Circuit has recognized multiple theories that give rise to an “implied license.” Wang Labs., Inc. v. Mitsubishi Elecs. Am., Inc., 103 F.3d 1571, 1580 (Fed. Cir. 1997) (“implied licenses arise by acquiescence, by conduct, by equitable estoppel (estoppel in pais), or by legal estoppel. These labels describe not different kinds of licenses, but rather different categories of conduct which lead to the same conclusion: an implied license.” (internal citations omitted)).

Jonathan Harris is a partner in Wiggin and Dana’s Corporate and Litigation Departments and a member of the Life Sciences Practice Group, Heather Brady is the Assistant General Counsel of Emergent Biosolutions, and Drew Hillier is an associate at Buchanan Ingersoll & Rooney