A Contested Order By The Federal Circuit Denies Request For En Banc Review Of Its Decision That Patent Co-Owners May Not Be Involuntarily Joined In A Patent Dispute

Recently, the Federal Circuit issued an order denying a request for en banc review of a panel decision that held that a patent co-owner may not be involuntarily joined as a plaintiff in a patent dispute.

It is generally recognized that all owners to a patent in suit must be a party to the action, otherwise the suit is dismissed for lack of standing. The reason is that a defendant should not be subjected to multiple suits by different parties regarding the same patent. The Federal Circuit in STC.UNM v. Intel Corporation considered the situation in which Sandia Corp (a co-owner of the patent in suit) refused to join STC.UNM’s (the licensing arm of the University of New Mexico) patent infringement suit against Intel.

In view of Sandia’s unwillingness to join the suit, STC moved the District Court to join Sandia as a plaintiff against its will pursuant to Fed. R. Civ. P. 19(a)(1). This rule provides that a court must join a person as a party to a matter if “the court cannot accord complete relief among existing parties.” The District Court, relying on the Federal Circuit’s decision in Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456 (Fed. Cir. 1998), denied this request “because each co-owner has a substantive right not to be involuntarily joined in a patent infringement” and dismissed the case for lack of standing.

On appeal, a 2-1 panel decision authored by Judge Dyk held that the District Court properly dismissed STC.UNM’s patent suit for lack of standing because the co-owner of the patent refused to join as a plaintiff. The panel, relying on its prior decision in Ethicon held that:

the right of a patent co-owner to impede an infringement suit brought by another co-owner is a substantive right that trumps the procedural rule for involuntary joinder under Rule 19(a).

The Federal Circuit by a 6-4 vote denied STC’s request for review of this decision en banc. In support of this denial, Judge Dyk wrote a concurring opinion further supporting the original panel decision. The concurrence concluded that the underlying decision was correct because a co-owner has a substantive right not to join a patent infringement litigation and Rule 19 is a procedural rule that “cannot be used to abridge, enlarge, or modify any substantive right.” The concurrence reasoned that:

If a co-owner can unilaterally license third parties, it follows that such a co-owner may decline to sue for infringement, and another co-owner may not unilaterally sue for infringement.

The concurrence expressed concerned that departing from the precedent set forth in Ethicon “would disrupt settled precedent of this court. … The value of stability is especially great for such rights.” The concurrence was also concerned that involuntary joinder would lead to inequitable results by compelling unwilling co-owners to “incur attorney’s fees, subject them to sanctions in exceptional cases under § 285, and disrupt established business relationships with the defendant or related parties.”

The decision denying en banc review was met with two blistering dissents. First, Judge Newman, who dissented in the underlying panel decision, observed that “Rule 19 is not permissive—yet this court holds that Rule 19 uniquely does not apply in patent cases.” The dissent noted that the Federal Rules of Civil Procedure have “the force of a federal statute” and there is “no justification” for providing a special rule for patents. Judge Newman further advocated that involuntary joinder was equitable because patent co-owners have a “right and duty to avoid waste of property owned in common.”

The second dissent, authored by Judge O’Malley, challenged the panel’s decision with a detailed analysis of Rule 19 and the origin of the Federal Circuit’s Ethicon opinion. Judge O’Malley concluded that neither Ethicon nor the precedent upon which it relies specifically held that a “co-owner cannot be involuntarily joined under Rule 19(a)” and the Ethicon decision itself was “predicated upon a series of misinterpretations and misstatements” of the authority upon which it relied.

Ultimately, Judge O’Malley concluded that the panel decision should be given review en banc because it “fails to ground its holding in either federal common law or the provisions of the Patent Act and ignores the mandatory nature of the Federal Rules of Civil Procedure.”

Judge O’Malley noted that the Supreme Court in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006) previously considered the Federal Circuit’s precedent on injunctions and rejected “this court’s attempt to develop a rule regarding the right to injunctive relief ‘unique to patent disputes.’”

Judge O’Malley also asserted that the panel’s decision conflicts with the statutory rights granted under Sections 262 and 281 of the Patent Act. Section 262 provides that:

each of the joint owners of a patent may 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.

Judge O’Malley observed that “[i]t seems inconsistent to say that each co-owner has an independent right to practice the patent, but that they may prevent one another from enforcing the fundamental right of exclusion.” Similarly, with respect to Section 281, which provides that a “patentee shall have remedy by civil action for infringement of his patent,” the dissent concluded that this ruling provides one co-owner the power to deny another co-owner the statutory right to enforce their patent.

Gibbons will continue to monitor this proceeding and provide updates of future developments.