“Just as bad facts can make bad law, misdirected lawyering can do the same.” – Federal Circuit opinion
On October 7, the United States Court of Appeals for the Federal Circuit (CAFC), in AntennaSys, Inc. v. AQYR Technologies, Inc., vacated and remanded a decision of the United States District Court for the District of New Hampshire. In particular, the CAFC vacated the district court’s grant of summary judgment of non-infringement and remanded for the district court to address “all factual issues pertaining to AntennaSys’s ability to bring its patent infringement claim against AQYR.” The opinion was written by Judge O’Malley, who found the appeal to be “extremely frustrating” and “refuse[d] to take the parties’ invitation to rule on [the factual] issues in the first instance” due to an incomplete record.
U.S. Patent No. 7,432,868 (the ’868 patent) was directed to directed to portable antenna positioners and assigned by its two inventors to AntennaSys and Windmill International, Inc. (Windmill). Pursuant to a license agreement, Windmill acquired an exclusive license to AntennaSys’s one-half interest in the patent in the United States Federal Marketplace (sales to the United States Government) and the commercial marketplace (sales outside the Federal Marketplace) and “Windmill agreed to pay AntennaSys three percent of the gross sales price for each unit of products covered by the patent.” Under the Agreement, the Windmill’s exclusive license would become non-exclusive it failed to meet certain minimum sales requirements in the commercial marketplace. It was undisputed that Windmill did fail to meet the sales requirements of the agreement, such that the license became non-exclusive.
AntennaSys and Windmill also agreed that “Windmill shall create” an LLC and “shall own the entire membership interest in the LLC,” wherein the LLC was to own both Windmill’s own interest in the patent and Windmill’s license to AntennaSys’s interest in the patent. The parties did not dispute that Windmill created such an LLC, i.e. GBS Positioner LLC.
In 2017, AntennaSys sued AQYR Technologies, Inc., subsidiary of Windmill, for infringement of the ’868 patent and also filed “an arbitration claim against Windmill based on an alleged failure to pay royalties for sales of the accused products pursuant to the license agreement. The parties agreed to dismiss the arbitration claim and proceeded in district court on five state law counts and one count of patent infringement. Following claim construction, “AntennaSys conceded that it could not prevail on its patent infringement claim under the court’s construction of one of the claim terms [and] sought summary judgment of non-infringement.” After conducting a hearing wherein AntennaSys agreed that it could not succeed on any of its state law claims absent a finding of patent infringement—the district court entered judgment for Windmill. AntennaSys appealed to the CAFC.
On appeal, AntennaSys challenged the district court’s claim construction, but AQYR argued that the CAFC need not reach the merits of the appeal because AntennaSys lacked standing to bring a patent infringement claim absent joinder of Windmill as a co-plaintiff. The CAFC agreed that the “threshold issue” of joinder must be resolved first and that “no judgment on infringement should be entered without first resolving AQYR’s affirmative defense that it was authorized by a co-owner to practice the ’868 patent.” The CAFC also explained that if AQYR was never a proper party to the proceedings, then the district court would not have had jurisdiction over them.
The CAFC noted that joint owners of a patent, under 35 U.S.C. § 262, have the right to “make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners” and are “at the mercy of each other.” Noting that there is a statutory requirement that an action for infringement must join all co-owners as plaintiffs, the CAFC noted that there are two exceptions to the requirement: (1) “when any patent owner has granted an exclusive license, he stands in a relationship of trust to his licensee and must permit the licensee to sue in his name;” and (2) “[i]f, by agreement, a co-owner waives his right to refuse to join suit, his co-owners may subsequently force him to join in a suit against infringers.” Citing STC.UNM v. Intel Corp., the CAFC noted that a “non-consenting co-owner or co-inventor can never be involuntarily joined in an infringement action…because the right of a patent co-owner to impede an infringement suit brought by another co-owner is a substantive right.”
AQYR asserted on appeal that the CAFC lacked jurisdiction because AntennaSys lacked standing to sue for infringement because the failed to join Windmill as a co-plaintiff. In response the CAFC noted that AntennaSys’s failure to join Windmill as a co-plaintiff did not impact AntennaSys’s Article III standing, but rather “impact[ed] AntennaSys’s ability to satisfy the statutory prerequisites for bringing an infringement suit.” Although not jurisdictional in nature, the CAFC agreed that whether AntennaSys has met the statutory prerequisites for bringing an infringement claim is a threshold question that must be resolved before reviewing the district court’s claim construction and summary judgment rulings.
AQYR’s Challenges and Arguments
The CAFC considered whether AQYR waived its Section 262 challenge and whether their substantive arguments have merit. In addressing these issues, the CAFC noted that “[a]bsent agreement to the contrary, Windmill had every right to license the patent, and to the extent AQYR obtained an express or implied license from any patent co-owner, AQYR’s activities are authorized and non-infringing.” However, the CAFC found that the agreement produced “more confusion than clarity” and, thus the panel “refuse[d] to address whether the agreement limits one patent co-owner’s right to practice the patent in a way that prevents it from issuing a license to the alleged infringer, or whether the patent infringement claim should be dismissed because an express or implied license exists.”
The Court therefore remanded for the district court to address: (1) “whether Windmill waived the right to object to AntennaSys’s failure to meet the § 262 prerequisite”; (2) “whether GBS or Windmill holds or retains ownership interest in the ’868 patent”; (3) “whether AntennaSys’s patent infringement suit is barred under § 262 due to an express or implied license to AQYR; and, (4) the timing of any such license.”
AntennaSys’s Patent Infringement Claim
The CAFC then addressed “why, in the event AntennaSys’s patent infringement claim against AQYR should be dismissed—either due to absence of a co-owner or the existence of an implied license from a co-owner to the accused infringer—the district court’s claim construction may still be unnecessary.” The CAFC noted that, even where federal law does not create the cause of action, federal jurisdiction may extend to a “special and small category” of cases wherein “a well-pleaded complaint establishes that a federal law issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.”
The Court explained that AntennaSys cannot meet the “substantiality” prong of the analysis, which looks to “the importance of the issue to the federal system as a whole.” In particular, the opinion noted that a substantial federal issue may exist where one of three conditions is met, one of which requires that “the federal issue is purely a question of law, rather than one that is ‘fact-bound and situation-specific.’” Noting that the federal issue in the case, i.e. patent infringement, was fact-bound and situation-specific, the CAFC explained that the case did not “present a context-free interpretation of a patent statute, but require[d] merely that the court apply patent law to the facts of the case.”
Thus – after lamenting the “extremely frustrating” exercise this case was for the court and noting that “just as bad facts can make bad law, misdirected lawyering can do the same” – the Court concluded that, to the extent the district court finds on remand that AntennaSys’s patent infringement claim should be dismissed, it would follow that the district court has no independent jurisdiction over the state law counts, since the patent infringement claim was the only federal question in the lawsuit.