Christopher A. Harkins discusses the recent Federal Circuit of Morrow v. Microsoft, which held that a trust established to enforce the patent in issue lacked standing to sue an infringer (or even join as a co-plaintiff) in a patent infringement lawsuit. Mr. Harkins writes:

     The debtor, an Internet service provider of cable television, filed a petition for bankruptcy under Chapter 11. Among the assets of the bankruptcy estate was a patent. The bankruptcy liquidation plan spawned three trusts. A first trust received all legal title to the patent, although it did not have the right to sue for infringement of the patent (the Ownership Trust). A second trust received the rights to all causes of actions against third parties for patent infringement, although it had no exclusive rights to make, use, sell, or offer to sell the patented invention, no right to grant licenses under the patent, and no right to collect licensing royalties (the Enforcement Trust). A third trust was given all rights to causes of actions against controlling shareholders (the Derivative Suit Trust).

     The Enforcement Trust filed suit against Microsoft alleging infringement of the patent. In its counterclaims for non-infringement, invalidity, and unenforceability of the patent, Microsoft joined the Ownership Trust as a third party defendant. Then, Microsoft filed a motion for summary judgment contending that the Enforcement Trust lacked standing.

     The district court found that the Enforcement Trust’s rights arose out of “bankruptcy law and trust relationships, rather than a traditional patent licensing relationship.” According to the district court, the Enforcement Trust had standing due to “special circumstances surrounding the trust relationship between [the Enforcement and Ownership Trusts] created through the bankruptcy proceedings.”

     The Federal Circuit reversed. According to the court, while the Ownership Trust held legal title to the patent, the sole right to sue was held solely by the Enforcement Trust. Blow one. But the Enforcement Trust held only a right to sue parties (except shareholders) for infringing the patent, which did not include sufficient “exclusionary” rights and interests under the Patent Act to claim an injury in fact from the infringement. Blow two. Because the Enforcement Trust lacked any injury in fact (e.g., it was neither an owner nor exclusive licensee of the patent), it lacked all standing to be a party to the case. Significantly, the Federal Circuit found that this “standing deficiency cannot be cured by adding the patent title owner to the suit.”  

(Citations omitted.)