Bensen on Patentee Standing to Pursue Appeal: Schwarz Pharma, Inc. v. Paddock, 504 F.3d 1371, 84 U.S.P.Q.2d 1900 (Fed. Cir. 2007)
Co-author of Milgrim on Licensing and Milgrim on Trade Secrets and a Visiting Assistant Professor of Law at Hofstra University School of Law
In Schwarz Pharma, Inc. v. Paddock, the Federal Circuit considered whether an exclusive patent licensee which brought suit for infringement with the patentee as coplaintiff had standing to appeal an adverse decision without the patentee, which chose not to join in the appeal. In this commentary, Eric Bensen, co-author of Milgrim on Licensing and Milgrim on Trade Secrets, analyzes Schwarz Pharma, which held that the licensee had the requisite standing. Mr. Bensen writes:
The standing of an exclusive licensee to sue for infringement has at time been the subject of more disputes. Courts have recognized that although denominated an exclusive license, an agreement may nonetheless convey all of the substantial rights in a patent, i.e., exclusivity, the right to transfer and the right to sue infringers, such that it is in substance an assignment thereby giving the licensee standing to sue. That result may obtain even where the licensee retains inconsequential rights such as right to be notified of any suit brought by the licensee, a right to obtain patents on the invention in other countries or a reversionary right to the patent in the event of bankruptcy.
An exclusive licensee with less than all of the substantial rights in the patent still has constitutional standing to sue in its own name (because it has a legally protected interest in the patent), but, because of the possibility of multiple infringement suits against a single infringer, i.e., one by the patentee and one by the licensee, courts will deny an exclusive licensee prudential standing and instead require that to maintain a suit for infringement, it join the patentee as a party. An exclusive licensor holds title to the patent in trust for its exclusive licensee and must allow use of its name as plaintiff in the exclusive licensees suit against an infringer.
. . . .
The Federal Circuit acknowledged that the [standing] issue raised by Paddock was a novel one. To address it, the court looked to the underlying rationale for not permitting an exclusive patent licensee to sue in its own name without joining the patent owner. The requirement that an exclusive licensee join the patent owner to have standing, the court observed, is rooted in two policy concerns, summarized here.
1. Without joinder, the infringer may be subject to multiple actions arising from the same act of infringement.
2. The patent owner should not be put at risk of having its patent declared invalid without the opportunity to participate in the infringement action.
In rejecting Paddock’s challenge to Schwarz’s standing to appeal, the court held that neither of the aforementioned concerns would be implicated if Schwarz proceeded without the patentee.
(citations omitted)