May 30, 2019

Lack of All Substantial Rights Deprived Plaintiff of Statutory Standing, But Not Article III Standing

By Bryan K. Wheelock, Principal

In Lone Star Silicon Innovations LLC. v. Nanya Technology Corporation, [2018-1581] (May 30, 2019), the Federal Circuit affirmed the district court’s determination that Lone Star did not own the patents in suit, but reversed the dismissal of the action, finding that the court should consider whether AMD, the patent owner, should have been joined.

The asserted patents were originally assigned to AMD, which later executed an agreement purporting to transfer “all right, title and interest” in the patents to Lone Star. The transfer agreement, however, imposed several limits on Lone Star, including that Lone Star agreed to only assert the covered patents against entities specifically listed in the agreement. If Lone Star sued an unlisted entity, AMD had the right — without Lone Star’s approval — to sublicense the covered patents to the unlisted target. AMD could also prevent Lone Star from assigning the patents or allowing them to enter the public domain.

Lone Star sued entities who were listed in the transfer agreement, alleging that AMD transferred “all right, title, and interest” in the asserted patents to Lone Star. Nearly a year after filing, Lone Star finally produced the transfer agreement, which resulted in motions to dismiss, which the district court granted after concluding that Lone Star did not hold all substantial rights in the asserted patents.

The Federal Circuit agreed with the district court that, while Lone Star was given a number of rights in the transfer agreement, it was not given all substantial rights in the asserted patents. The Federal Circuit explained that the “ultimate task is not to tally the number of rights retained against those transferred.” The inquiry depends on the substance of what was granted rather than formalities or magic words.

Looking at the “totality” of the transfer agreement, the Federal Circuit focused on two salient rights: enforcement and alienation. Noting that Lone Star needed AMD consent to sue unlisted entities, and that Lone Star’s ability to transfer the patents was limited to assignees who agreed to be bound by the same terms and conditions, the Federal Circuit concluded that Lone Star did not have all substantial rights.

The Federal Circuit found that the district court erred when it concluded that Lone Star did not have standing, however, noting the difference between statutory jurisdiction and subject matter jurisdiction. The Federal Circuit noted that its own precedent was at least partly responsible for this error, and pronounced it was bringing itself into accord with Lexmark and our sister circuits by concluding that whether a party possesses all substantial rights in a patent does not implicate standing or subject-matter jurisdiction. Accordingly, the Federal Circuit found that, although Lone Star does not possess all substantial rights in the asserted patents, its allegations still satisfy Article III.

Because it has standing, even if it lacks all substantial rights in the patents, Lone Star should be given an opportunity to join AMD as a necessary party before this case is dismissed. The Federal Circuit agreed, finding the result compelled by FRCP 19(a)(2) (“If a person has not been joined as required, the court must order that the person be made a party”) and Federal Circuit precedent. The Federal Circuit vacated the district court’s dismissal and remanded with an instruction that it consider whether AMD must be joined here.