440-600-1992

Patent Infringement Suit Dismissed When Indispensible Party Cannot Be Joined

In a suit involving patents pertaining to the material for the construction of lithium batteries, A123 Systems sought a declaration of noninfringement and invalidity of two patents against defendant Hydro-Quebec ("HQ").[i] However, HQ was only a licensee of the patents in question which had been assigned by the inventors to the Board of Regents, The University of Texas System ("UT").[ii] After A123 had filed its action in the District of Massachusetts, HQ argued that since UT had not been joined but was a necessary party to the action due to the fact UT retained substantial rights in the two patents, the suit should be dismissed.[iii] However, A123 was unable to join UT since UT was entitled to Eleventh Amendment sovereign immunity.[iv] Shortly following the filing of this action, HQ and UT commenced an infringement action in the North District of Texas against A123.[v]

On appeal, A123 argued that UT had transferred all substantial rights to HQ.[vi] Alternatively, A123 argued that UT had waived its sovereign immunity in Massachusetts, and A123 also argued that UT was not an indispensible party, even if it was a necessary party.[vii] On the first issue, the Court explained that "an exclusive licensee with less than all substantial rights in a patent, such as a field-of-use licensee, lacks standing to sue for infringement without joining the patent owner."[viii] On this issue, the Court concluded that "HQ was a field-of-use licensee" since it only had an exclusive license in two fields of use.[ix] Therefore, UT had retained substantial rights in the two patents.[x]

Regarding the second issue, A123 argued that since UT had commenced an infringement suit in Texas on the same two patents, it had waived sovereign immunity.[xi] The Court clarified that "where a waiver of immunity occurs in one suit, the waiver does not extend to an entirely separate lawsuit, even one involving the same subject matter and the same parties."[xii]

The Court then addressed A123's third argument asserting that UT was not an indispensible party.[xiii] The Court considered the four factors[xiv] to determine if joinder is possible and determined that three of the four factors favored "holding UT to be an indispensible party."[xv] Generally, since UT has retained substantial rights in the two patents, a judicial verdict on those patents could significantly impact UT's rights; therefore, UT needed to be a party to any litigation.[xvi]

This case exemplifies the necessity to conduct proper research concerning intellectual properties owned by others prior to assessing the potential freedom to act in regards to those interests. Where licensing of intellectual property is involved, ascertaining the extent of the license is necessary to determine whom to initiate suit against as well as in what venue to initiate that suit.

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