Federal Circuit Decision Highlights Risk of Co-owning Patents

Co-owning any piece of property can lead to unwanted and unexpected headaches. And as demonstrated by the Federal Circuit in STC.UNM v. Intel Corp., Fed. Cir. No. 2013-1241, this is especially true with respect to co-ownership of patents. Here, the Federal Circuit held that STC lacked standing to bring its patent infringement lawsuit against Intel because Sandia Corp., a co-owner of the patent-in-suit, refused to voluntarily join the lawsuit, and could not be involuntarily joined under Federal Rule of Civil Procedure 19(a).

The basic facts surrounding the STC.UNM v. Intel decision are as follows. The relevant patent-in-suit, U.S. Patent No. 5,705,321 (“’321 Patent”), has four inventors. At the time of the invention, three of the inventors were employed by the University of Mexico, and the fourth inventor was employed by Sandia Corp. Through various assignment agreements, the ’321 Patent eventually became co-owned by STC (a wholly-owned licensing arm of the University of Mexico) and Sandia.

In 2010, STC, on its own, filed suit against Intel in the District of New Mexico alleging infringement of the ’321 Patent. Intel later moved for summary judgment asserting that STC lacked standing to sue Intel by itself. The court agreed with Intel and dismissed the case on the basis that both patent co-owners must join the case. STC appealed.

In the appeal, STC argued that Sandia should have been involuntarily joined under Fed. R. Civ. P. 19(a). Rule 19(a) provides a procedural mechanism by which a party can join necessary parties to a lawsuit. In a 2-1 decision, the Federal Circuit disagreed with STC and affirmed the district court’s holding. Specifically, the majority held that the Patent Act affirmatively requires consent among all co-owners of a patent before a suit can be brought, and this is a substantive right that cannot be trumped by a procedural rule, such as Rule 19(a). The Federal Circuit did acknowledge at least two exceptions to this rule: (1) where an exclusive licensee can involuntarily join the patent owner, and (2) where, by agreement, a co-owner has waived its right to refuse to join suit. However, these two exceptions were irrelevant to the particular facts of this case.

STC then filed a petition for an en banc hearing with the Federal Circuit. But on September 17, 2014, that petition was denied by the Federal Circuit in a 6-4 decision. This decision included two dissenting opinions. In dissent, it was argued that “[t]he unique exclusion of patent cases from Federal Rule 19 is as peculiar as it is unjustified.” This issue is now ripe for Supreme Court review should STC decide to appeal again.

Overall, this case highlights the need for patent owners to clarify patent ownership issues well before any patent infringement lawsuit is filed. If a patent must be co-owned, then the parties should at the very least enter into an agreement specifying their respective enforcement rights as suggested by the Federal Circuit.