EDWARD M. CHEN, United States District Judge.
Plaintiff CopyTele, Inc. has filed a patent infringement action against Defendants E Ink Holdings, Inc. and E Ink Corporation (collectively, "E Ink"). According to CopyTele, it is the sole owner of all rights, title, and interest in three patents (the '935 patent, the '810 patent, and the '488 patent), see Compl. ¶¶ 8-10, and E Ink has infringed on those patents. Currently pending before the Court is E Ink's motion to dismiss for lack of standing. In essence, E Ink contends that Copytele's lawsuit is premature because (1) it previously assigned all substantial rights to the patents at issue to a third-party exclusive licensee, AU Optronics Corp. ("AUO"); (2) it has not yet secured a judgment (in a related case, CopyTele, Inc. v. AU Optronics Corp., No. C-13-0380 EMC) that the assignment has been rescinded; and (3) even upon rescission CopyTele will have standing only to sue prospectively and not retroactively.
Having considered the parties' briefs, as well as the oral argument of counsel, the Court hereby
For purposes of the pending motion, the relevant facts are not so much contained within the complaint in this case as within the complaint in the related action, CopyTele, Inc. v. AU Optronics Corp., No. C-13-0380 EMC. For convenience, the Court shall hereinafter refer to the related case as the conspiracy case.
In the conspiracy case, CopyTele has filed suit against both E Ink and AUO. The relevant allegations are as follows.
CopyTele is a company with "a 30-year history of inventing, developing, and patenting pioneering display technologies." No. C-13-0380 Compl. ¶ 23. It has patented certain display technologies, including electrophoretic display ("EPD") technologies. See No. C-13-0380 Compl. ¶ 2. EPDs "are low voltage, high resolution,
"E Ink is the dominant, worldwide manufacturer and supplier of [EPDs], including those used in eReaders sold under the `Kindle' and `Nook' brand names." No. C-13-0380 Compl. ¶ 28. "AUO is one of the world's largest manufacturers of flat panel LCD displays for televisions, computers, and tablets, including the Apple iPads." No. C-13-0380 Compl. ¶ 26.
"In September 2010, AUO approached CopyTele about purchasing a subset of CopyTele's EPD Patents for $1.5 million." No. C-13-0380 Compl. ¶ 29. CopyTele declined and proposed instead that the two companies work together to jointly develop EPD products. Accordingly, in May 2011, the parties entered into a contract, known as the EPD Agreement. See Compl., Ex. A (EPD Agreement).
A primary goal of the EPD Agreement "was for CopyTele and AUO to jointly develop EPD Products that would successfully compete with electrophoretic displays manufactured by E Ink." No. C-13-0380 Compl. ¶¶ 4, 12. Key terms in the agreement include the following:
In consideration for the license granted by CopyTele, AUO was to pay "a de minimis initial payment, considerable progress payments, and significant running royalties that were tied to the sales of the [jointly developed] EPD Products." No. C-13-0380 Compl. ¶ 31. According to CopyTele, "[w]ithout the joint development commitment from AUO, CopyTele was unwilling to license or sell any of its EPD Patents to AUO." No. C-13-0380 Compl. ¶ 29.
In its complaint, CopyTele maintains that AUO breached its "best efforts" obligations under the EPD Agreement. See No. C-13-0380 Compl. ¶¶ 40-46. Moreover, according to CopyTele, AUO never had any intention of using its "best efforts" to jointly develop EPD products. See No. C13-0380 Compl. ¶ 49. "Instead, AUO used the EPD Agreement as an excuse to obtain a license to the EPD Patents, which AUO intended to pass on to E Ink, in conjunction with and in exchange for the $50 million paid by E Ink to AUO in connection with the sale of SiPix [an AUO subsidiary] to E Ink."
In its motion, E Ink contends that, as a result of the EPD Agreement, CopyTele does not have constitutional standing to prosecute this patent infringement action.
Standing is a matter of subject matter jurisdiction. See Bates v. UPS, 511 F.3d 974, 985 (9th Cir.2007) (en banc) (stating that Article III "[s]tanding is a threshold matter central to our subject matter jurisdiction"). A motion to dismiss on the basis of subject matter jurisdiction can be either a facial attack or a factual one. See Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir.2004). Here, E Ink makes a facial attack. "In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction." Safe Air v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004). A court may consider not only the allegations in the complaint in a facial attack but also documents attached to the complaint and judicially noticeable facts. See Vita-Herb Nutriceuticals, Inc. v. Probiohealth, LLC, No. SACV 11-1463 DOC (MLGx), 2013 WL 1182992, at *2-3, 2013 U.S. Dist. LEXIS 40483, at *6 (C.D.Cal. Mar. 20, 2013); Pacific Coast Fed'n of Fishermen's Ass'ns v. United States DOI, No. 1:12-CV-01303-LJO-MJS, 929 F.Supp.2d 1039, 1045, 2013 WL
The Federal Circuit has explained that
Morrow v. Microsoft Corp., 499 F.3d 1332, 1339-41 (Fed.Cir.2007).
In the instant case, E Ink contends that the EPD Agreement between CopyTele and AUO provided for an effective assignment of the patents at issue such that CopyTele lacks the exclusionary rights and all substantial rights to meet the injury-in-fact requirement of constitutional standing. According to E Ink, because the patents were effectively assigned, only AUO has standing to sue, at least until the EPD is rescinded.
To determine whether a provision in an agreement is tantamount to an assignment or is instead merely a license (which would not divest the patentee of standing to sue for infringement), a court "`must ascertain the intention of the parties [to the agreement] and examine the substance of what was granted.'" Alfred E. Mann Found., 604 F.3d at 1359. "It is well settled that `whether a transfer of a particular right or interest under a patent is an assignment or a license does not depend upon the name by which it calls itself, but upon the legal effect of its provisions.'" Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 875 (Fed.Cir.1991).
As noted above, the relevant agreement in the instant case is the EPD Agreement. The EPD Agreement includes a California choice-of-law provision. See Compl., Ex. A (EPD Agreement § 6.1) (providing that "[t]he rights and obligations of the Parties under this Agreement shall be governed by and construed in accordance with laws of the California"). Thus, the EPD Agreement is to be interpreted under California law. See id. at 1359.
Under California law, "[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." Cal. Civ.Code § 1636.
E.M.M.I. Inc. v. Zurich Am. Ins. Co., 32 Cal.4th 465, 470, 9 Cal.Rptr.3d 701, 84 P.3d 385 (2004) (citing Cal. Civ.Code §§ 1638-39, 1644). "Extrinsic evidence is admissible, however, to interpret an agreement when a material term is ambiguous." Wolf v. Walt Disney Pics. & Tel., 162 Cal.App.4th 1107, 1126, 76 Cal.Rptr.3d 585 (2008).
Accordingly, under California law, the Court must determine here whether, on the face of the EPD Agreement, the parties intended there to be an assignment or something tantamount to an assignment, as opposed to a mere license.
The EPD Agreement on its face states:
No. C-13-0380 Compl., Ex. A (EPD Agreement § 3.1) (emphasis added). Given this express statement in the EPD Agreement, it is difficult to see how the parties did not intend for there to be an
In its papers, CopyTele tries to argue that the above statement in the EPD Agreement was simply an expression of intent to convey all rights to sue, and nothing more. See Opp'n at 10-12. CopyTele is right in pointing out that it is possible for a patent holder to give another party the right to sue without giving that party all substantial rights. See Opp'n at 13; see also Propat Int'l Corp. v. RPost, Inc., 473 F.3d 1187, 1192 (Fed.Cir.2007) (stating that a ""right to sue" clause in a contract, unaccompanied by the transfer of other incidents of ownership, does not constitute an assignment of the patent rights that entitles the transferee to sue in its own name[;] [t]hat principle sensibly reflects that a patent owner may give another responsibility to select targets for suit — a power of attorney, in effect — without surrendering ownership of the patent") (emphasis added). But here, as discussed below, there are other substantial incidents of ownership that have been transferred under the EPD Agreement (e.g., the exclusive license, the right to sublicense, the right to sue and settle for patent infringement).
CopyTele's argument is particularly problematic because it ignores the explicit provision in the EPD Agreement that substantial rights were being transferred to AUO such that CopyTele would not need to be a named party in any enforcement proceeding. See Reply at 10 (noting that "an exclusive licensee only gains the ability to sue without joining the patent owner when it receives a transfer of `all substantial rights'"); cf. Morrow, 499 F.3d at 1340 (noting that, where a party holds some exclusionary rights and interests created by the patents statutes, but not all substantial rights to the patent, that party must usually bring suit with the patent holder who transferred the exclusionary rights in order to satisfy prudential standing concerns). Hence, both the explicit terms and the substance of the EPD Agreement evidences the parties' intent to transfer all substantial rights to AUO.
Presented with this situation, CopyTele makes a final contention that, at the very least, the EPD Agreement is ambiguous as to the intent of the parties and, as "there is a disputed issue of fact as to whether the intent of the parties was to simply transfer to AUO a right to sue, ... the issue cannot be resolved at the pleadings stage." Opp'n at 11-12. The problem with this argument is that the EPD Agreement is not ambiguous on its face. While "a contract apparently unambiguous on its face may still contain a latent ambiguity that can only be exposed by extrinsic evidence," Wolf, 162 Cal.App.4th at 1133, 76 Cal.Rptr.3d 585. CopyTele has not pointed to any extrinsic evidence that suggests an intent contrary to that expressed in the EPD Agreement. See WYDA Assocs. v. Merner, 42 Cal.App.4th 1702, 1710, 50 Cal.Rptr.2d 323 (1996) (noting that a "trial court's determination of whether an ambiguity exists is a question of law"; adding that a "trial court's resolution of an ambiguity is also a question of law if no parol evidence is admitted or if the parol evidence is not in conflict").
In sum, the factor of the parties' intent militates in favor of E Ink. It alone, however, is not dispositive.
As noted above, what the parties' intentions are is only part of the Court's inquiry.
The Federal Circuit has never "purported to establish a complete list of rights" that must be examined by a court in determining whether a licensee has been given substantial rights in the patent such that it alone has the right to bring suit. Id. at 1360. The Federal Circuit, however, has
Id. at 1360-61 (emphasis added).
In the instant case, E Ink contends that AUO was assigned all substantial rights because, under the agreement (1) AUO was given an exclusive license and for the lifetime of the patents at issue; (2) AUO was given the right to sublicense without any restraints; (3) AUO was given the unfettered right to sue and settle at its discretion; and (4) there was no specific provision providing for a reversion of rights to CopyTele under any circumstances, including a breach by AUO. See Mot. at 8. At the hearing, CopyTele did not really dispute that these rights were substantial rights, including the right to settle and sue which, as noted above, the Federal Circuit has considered to be the most important consideration.
Nevertheless, CopyTele argues that it still has standing to sue because AUO was not assigned all substantial rights — i.e., under the agreement, CopyTele retained significant rights, in particular: (1) CopyTele had the responsibility to pay maintenance fees for the patents at issue, see No. C-13-0380 Compl., Ex. A (EPD Agreement § 6.11) (providing that "[CopyTele] agrees to make any maintenance fees for the Licensed Patents in a timely manner as they are due"); (2) CopyTele "retain[ed] a non-exclusive right to use the Licensed Patents and Licensed Products in a non-competitive manner," No. C-13-0380 Compl., Ex. A (EPD Agreement § 2.2); and (3) AUO was barred from assigning or transferring the agreement, any rights under the agreement, or the licensed patents without the prior written
Section 6.11 of the EPD Agreement provides as follows:
No. C-13-0380 Compl., Ex. A (EPD Agreement § 6.11).
As a preliminary matter, the Court notes that the section taken as a whole indicates that CopyTele's payment of maintenance fees is not really for its own benefit but rather is part of the obligations owed to AUO. See Reply at 9. Thus, arguably, for that reason alone, the above provision should not constitute a retention of substantial rights by CopyTele. However, even to the extent CopyTele's payment of maintenance fees is some evidence of retained ownership of the patents at issue, the Federal Circuit has never held that the payment of such fees is dispositive. At best, evidence of such is simply one indication of ownership. See Propat, 473 F.3d at 1191 (stating that "[t]he responsibility to maintain a patent is one of the obligations that has been recognized by this court as an indication that the party with that obligation has retained an ownership interest in the patent") (emphasis added); see also Mentor H/S, Inc. v. Medical Device Alliance, Inc., 240 F.3d 1016, 1018 (Fed.Cir.2001) (concluding that Sonique retained significant ownership rights in the patent at issue but not based solely on its obligation to pay the maintenance fees for the patent; noting, e.g., that Sonique could develop and manufacture products for sale to licensee, supervise and control licensee's product development, and "most importantly" had the first obligation to sue parties for infringement). It is not a conclusive factor.
Section 2.2 of the EPD Agreement provides as follows:
No. C-13-0380 Compl., Ex. A (EPD Agreement § 2.2) (emphasis added).
According to CopyTele, the above retention of rights establishes that it retained substantial rights to the patents at issue, as established by multiple Federal Circuit cases. However, the cases on which CopyTele relies are all distinguishable. In none of the cases was there a significantly restricted right to use the patent — certainly nothing comparable to a restriction to use the patent in a noncompetitive manner as provided for above. Indeed, in two of the cases, the Federal Circuit took note of a retained right to market and sell the patented invention — something that the EPD Agreement would bar CopyTele from doing if it would be competitive to AUO.
Notably, a number of courts have held that a retention of noncompetitive rights does not amount to a retention of substantial rights. See, e.g., Adventus Am. Inc. v. Innovative Envtl. Techs., No. 06 CV 3267, 2007 WL 704938, at *5, 2007 U.S. Dist. LEXIS 15611, at *12-13 (N.D.Ill. Mar. 5, 2007) (noting that "the University has retained non-commercial research investigatory rights" but stating that "[t]hese research rights ... are not the same type of `use' rights the Federal Circuit has held amount to a failure to transfer all substantial rights to a licensee") (citing Abbott);
Section 6.3 of the EPD Agreement states as follows:
No. C-13-0380 Compl., Ex. A (EPD Agreement § 6.3).
CopyTele argues that the above provision, which limits the right of AUO to assign its rights under the agreement to a third party (i.e., consent of CopyTele is required), is dispositive — i.e., it establishes that CopyTele retained substantial rights.
CopyTele relies in large part on Propat, where the Federal Circuit noted that "[t]he right to dispose of an asset is an important incident of ownership." Propat, 473 F.3d at 1191. But Propat is distinguishable on its facts. As in the instant case, in Propat, the agreement between the patent holder and the licensee provided that the licensee could not assign its rights under the agreement without the consent of the patent holder. However, the agreement in Propat used very specific language — i.e., that the patent holder could "freely withhold" consent. Id. at 1190. The district court considered this provision to mean that the patent holder could withhold consent "`even arbitrarily,'" id., and the Federal Circuit seemed to agree. See id. at 1191 (referring to "the unrestricted power to bar Propat from transferring its interest in the patent to a third party"; also stating that "the agreement expressly indicates that Authentix is free to veto any such transfer decision, even if it does so `arbitrarily'"). It was this ability to arbitrarily refuse consent to which the Federal Circuit gave great weight:
Id.
Here, Section 6.3 does not confer upon CopyTele the right to withhold consent arbitrarily. Absent such a provision, the right to withhold consent is subject to the implied covenant of good faith and fair dealing. See Foley v. Interactive Data Corp., 47 Cal.3d 654, 683, 254 Cal.Rptr. 211,
CopyTele's reliance on Sicom Systems Ltd. v. Agilent Technologies, Inc., 427 F.3d 971 (Fed.Cir.2005), presents a closer case. In Sicom, the Federal Circuit seemed to express agreement with the lower court's statement that the restriction on the licensee's right to assign/sublicense (i.e., consent of the patent holder was required) was a "`fatal reservation of rights.'" Id. at 979. Nevertheless, it is far from clear that the Federal Circuit rested its decision on that specific fact alone. Indeed, in Sicom, there were a number of factors pointing to a retention of substantial rights by the patent holder — e.g., the licensee did not have the exclusive right to sue for any kind of infringement, the licensee did not have the right to settle litigation without the consent of the patent holder, the patent holder reserved the rights to grant contracts and subcontracts to develop, and so forth. See id. As noted above, many substantial rights were transferred to AUO, including the right to sue and settle and the right to sublicense.
With respect to the right to sublicense, Aspex Eyewear, Inc. v. Miracle Optics, Inc., 434 F.3d 1336 (Fed.Cir.2006), and Vaupel, 944 F.2d at 870, are particularly instructive cases. In Aspex, the licensee was given "a virtually unfettered right to sublicense all of its rights to a third party [of its own choosing]." Aspex, 434 F.3d at 1338. While there was another provision in the license agreement that no right under the agreement could be assigned or transferred by the licensee without the patent holder's prior written consent (unless the assignment was made to an affiliate of the licensee), see id. at 1341, the licensee contended that this provision was not "meaningful" because the "more relevant provision" was the former. The Federal Circuit agreed stating that, "given its virtually unfettered right to sublicense, Chic's limited ability to assign its rights to unaffiliated third parties is not controlling." Id. at 1342 (emphasis added).
As E Ink argues, Aspex is essentially analogous to the instant case. Here, even though the EPD Agreement has a provision that requires the other party's consent to an assignment (§ 6.3), that provision has an exception — i.e., "[e]xcept as otherwise specifically provided in this Agreement," Compl., Ex. A (EPD Agreement § 6.3) — and the EPD Agreement includes another provision (§ 2.2) which expressly gives AUO the right to "sub-license the Licensed Patents." Compl., Ex. A (EPD Agreement § 2.2). That right to sublicense does not appear to be subject to any restrictions.
Vaupel also weighs against CopyTele. In Vaupel, the Federal Circuit noted that the license agreements showed that the patent holder retained, inter alia, a veto right on sublicensing by the licensee. In spite of this veto right (or consent requirement), the court stated that the right was not "so substantial as to reduce the transfer to a mere license or indicate an intent not to transfer all substantial rights." Vaupel, 944 F.2d at 875. The court characterized "[t]he sublicensing veto [as] a minor derogation from the grant of rights" that "did not substantially interfere with the full use by [the licensee] of the exclusive rights under the patent." Id. Here, of course, there is not even a sublicensing veto. However, even if the Court were to evaluate the assignment veto (i.e., the requirement that CopyTele consent to the assignment), Vaupel indicates that that veto right constitutes at best a "minor derogation" from the broad grant of rights under the EPD Agreement. Id. The power to withhold consent appears to be restricted
To be sure, in REFAC International, Ltd. v. VISA USA, Inc., No. C-89-2198-DLJ (ENE), 1990 WL 130032, 1990 U.S. Dist. LEXIS 11942 (N.D.Cal. June 26, 1990), Judge Jensen noted that "REFAC is ... precluded under the agreement from assigning its rights under the patent to anyone except a successor company that acquires REFAC's entire business. In the opinion of the Court, we need look no farther in determining that the patentee Lemelson reserved substantial rights under the agreement." Id. at *5, 1990 U.S. Dist. LEXIS 11942 at *14. But the restriction on transfer here is not so broad. In any event, REFAC predated Aspex and Vaupel.
Because both the intention of the parties and the substance of what was granted under the EPD Agreement indicate that the EPD Agreement between CopyTele and AUO was tantamount to an assignment of the patent, and not merely a license, see Mann, 604 F.3d at 1359, or merely an assignment of the bare right to sue, the Court holds that all substantial rights were transferred to AUO such that it alone has the right to bring a suit for patent infringement. See Morrow, 499 F.3d at 1340 (noting that, "if a patentee transfers `all substantial rights' to the patent, this amounts to an assignment or a transfer of title, which confers constitutional standing on the assignee to sue for infringement in its own name alone"). CopyTele does not have standing to prosecute the action.
CopyTele argues that, even if, as an initial matter only AUO had standing to bring a suit for patent infringement because of the assignment of substantial rights under the EPD Agreement, CopyTele obtained standing to sue once AUO materially breached the EPD Agreement. According to CopyTele, once AUO materially breached the agreement, that legally gave CopyTele the right to terminate the agreement
In response, E Ink argues that CopyTele did not have the right to terminate the agreement because it had assigned (and not licensed) rights to AUO. That is, E Ink contends that, where rights have been assigned, the only way to undo an agreement is to rescind it; in contrast, where rights have been licensed, then an agreement may be undone by terminating it. See Reply at 11-13 (citing, inter alia, Jim Arnold Corp. v. Hydrotech Sys., Inc., 109 F.3d 1567 (Fed.Cir.1997)). While the Court has found that the EPD Agreement effected in essence an assignment and not a mere license of the patent to AUO, the Court need not resolve the issue of whether a rescission or termination of the agreement is required to vest CopyTele with enforcement rights, because there is a more fundamental problem.
CopyTele does not dispute that whether there was a material breach by AUO is a question of fact that needs to be resolved before the issue of patent infringement can be addressed. See Opp'n at 17. Indeed, CopyTele's reliance on CAI International, Inc. v. South Atl. Container Lines, Ltd., No. C 11-2403 CW, 2012 WL 2598567, at *6, 2012 U.S. Dist. LEXIS 93214, at *16 (N.D.Cal. July 5, 2012), underscores that there must be an adjudication of the breach issue first. Given this
CopyTele fails to address this problem in its papers. Moreover, its suggestion that it can regain the right to enforce the patent simply by a unilateral declaration that the EPD Agreement is terminated is without any support. In fact, to allow CopyTele to prosecute the instant case after this Court has found that the right to enforce the patent was assigned to AUO would contravene the rule that the party which holds all substantial rights "alone has standing to sue for infringement." Morrow, 499 F.3d at 1340 (emphasis added).
Finally, CopyTele makes the assertion that whether the EPD Agreement transferred all substantial rights to AUO and whether the EPD Agreement has been terminated or rescinded are ultimately "academic" issues because "joining AUO as a party to the instant case pursuant to Federal Rule of Civil Procedure 19 will obviate any standing issue." Opp'n at 20.
The problem with this argument is that CopyTele must first have standing before it can ask for another party to be joined. As determined above, CopyTele does not, at this juncture, have standing to bring a claim for patent infringement. See WiAV Solns. LLC v. Motorola, Inc., 631 F.3d 1257, 1265 (Fed.Cir.2010) (stating that "the touchstone of constitutional standing in a patent infringement suit is whether a party can establish that it has an exclusionary right in a patent that, if violated by another, would cause the party holding the exclusionary right to suffer legal injury").
Notably, the cases cited by CopyTele in its opposition brief are largely distinguishable because they address a patent infringement action being brought by an exclusive licensee who has standing since it had certain exclusionary rights. Here, CopyTele does not claim to be an exclusive licensee. The party to whom all substantial rights, including the right to enforce, have been assigned is AUO, and thus it alone has standing to sue. See Alfred E. Mann, 604 F.3d at 1360.
For the foregoing reasons, the Court concludes that CopyTele has failed to establish standing at this juncture to proceed with its patent infringement suit. The EPD Agreement transferred all substantial rights to AUO such that AUO alone has standing to bring a suit for infringement — at least until a determination is made that AUO materially breached the
Accordingly, the Court grants E Ink's motion to dismiss but the dismissal shall be without prejudice to the extent that this ruling does not bar CopyTele from asserting a patent infringement claim against E Ink should a judicial determination be made that AUO materially breached the EPD Agreement, thus resulting in termination or rescission.
The Clerk of the Court is instructed to enter a final judgment in accordance with this opinion and close the file in the case.
This order disposes of Docket No. 38.
IT IS SO ORDERED.
