CPLRG™ 0012 - Tyco Healthcare Group LP v. Ethicon Endo-Surgery, Inc. - Dec. 7, 2009

587 F.3d 1375, 2009 U.S. App. LEXIS 26568 (Fed. Cir. 2009) (MICHEL & Prost; NEWMAN, dissenting)


MAJOR ISSUES: Standing to sue–dismissal without prejudice
Agreement transferring patents
Exception for patents and applications “related to” pending litigation

The moral of this case: draft an agreement that transfers assets including patents carefully.  An ambiguity may provide a basis for an accused infringer in a later suit to challenge the plaintiff’s ownership of the patent.  For a discussion of standing to sue for infringement, see Chisum Patent Law Digest § 9300.

In an April 1, 1999, “Contribution Agreement,” the plaintiff obtained a transfer of all the assets of another company, USSC.  The transfer agreement included patents but excluded patents and patent applications “relating to” then-pending litigation involving USSC.

The Federal Circuit held that, properly interpreted under the applicable state contract law (Delaware), the agreement’s exclusion of patents and applications “related to” litigation was not limited to patents actually asserted in the existing litigations or to applications in the same family as an asserted patent.  Rather, the “related to” provision included “any patents or patent applications in the same family or so related in subject matter that they were or could have been reasonably asserted in or affected by a litigation pending at the time the Contribution Agreement was executed.”

A plaintiff bears the burden of proving standing.  Here, the plaintiff’s burden was to prove that the patents currently asserted in this suit “could not have been asserted in or affected by any litigation pending as of April 1, 1999.  Plaintiff did not meet this burden.”

The record was silent on what litigation was pending on that date.  The Contribution Agreement stated in Section 4.21 that there was no pending litigation except as set forth in Schedule 4.21.  However, that Schedule either never existed or was missing!  Without knowledge of the pending litigations, “it is not possible to ascertain whether the patents-in-suit are `related to’ any relevant USSC litigation.”

On April 1, 1999, the transferor USSC had also entered into a “settlement agreement” with Ethicon, the accused infringer in the current suit.  The Settlement Agreement resolved five pending litigations and several interferences.  In the Settlement Agreement, USSC agreed to dismissal of the litigations and granted immunity to certain then-existing Ethicon products.  However, the accused products in the current litigation are not immune because they were sold after April 1, 1999.  The Settlement Agreement was not “dispositive of whether the patents-in-suit were `related to’ pending litigation.”  It covered “more subject matter than what was involved in the pending USSC litigation,” referring to “unasserted claims of patent infringement.”

The district court did not abuse its discretion in making the dismissal without prejudice.  The plaintiff might be able to establish that it did own the patents, or it might be able to obtain ownership of the patents.  There was no undue prejudice to the accused infringer.  The lack of standing was not raised until after the trial had begun.  If the plaintiff should “cure the ownership deficiency, most if not all the evidence, testimony, and rulings developed during trial should be applicable to a subsequent proceeding between the parties.”

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