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E-System Design, Inc. v. Mentor Graphics Corp.

United States District Court, E.D. Texas, Sherman Division

April 4, 2018

E-SYSTEM DESIGN, INC.
v.
MENTOR GRAPHICS CORPORATION

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE

         Before the Court is Defendant Mentor Graphics Corporation's (“Mentor”) Motion to Dismiss for Lack of Standing (Dkt. #9). After reviewing the relevant pleadings and motion, the Court finds that the motion should be denied.

         BACKGROUND

         This is a suit about a patent licensee suing for patent infringement. On January 14, 2008, the patent licensor-Georgia Tech Research Company (“Georgia Tech”)-executed a licensing agreement (the “Original License Agreement”) with the patent licensee-Plaintiff E-System Design (“E-System”) (Dkt. #9 at p. 6). The Original License Agreement granted “an exclusive license” to E-System for technology in U.S. Patent Application No. 11/888, 705 (the “Patent Application”) that later included United States Patent No. 8, 352, 232 (the “'232 Patent”) (Dkt. #1 at p. 4; Dkt. #9, Exhibit 1 at pp. 2-3; Dkt. #9, Exhibit 2 at p. 2; Dkt. #9, Exhibit 6 at p. 2). Thereafter, E-System and Georgia Tech amended the Original License Agreement five times (collectively, “the Agreements”). Amendment No. 5 to the Original License Agreement (“Amendment No. 5”), however, most impacts this Order's analysis.

         Executed on March 24, 2015, Amendment No. 5 gave E-System (1) the sole discretion to grant royalty-free sublicenses of the '232 Patent; (2) obliged E-System to pay Georgia Tech a portion of any one-time, lump sum received for sublicensing the '232 Patent; (3) relieved E-System from paying royalties for any “Net Sales” of products alleged to embody the '232 patent; and (4) gave E-System the sole and exclusive right to sue Mentor for infringement of the '232 Patent and all other purported infringers as long as E-System satisfied certain conditions (Dkt. #9, Exhibit 6). On September 27, 2017, E-System sued Mentor for patent infringement, alleging that Mentor had been infringing on the '232 Patent “since at least 2013.” (Dkt. #1 at p. 8). On December 11, 2017, Mentor filed a Motion to Dismiss for Lack of Standing (Dkt. #9). On January 8, 2018, E-System responded (Dkt. #14). On January 23, 2018, Mentor replied (Dkt. #20). On January 30, 2018, E-System filed its sur-reply (Dkt. #24).

         LEGAL STANDARD

         Standing is a threshold subject matter jurisdictional requirement. Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60 (1992). Plaintiff has the burden of demonstrating standing. Paradise Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304, 1309 (Fed. Cir. 2003). Standing must be present when the plaintiff brings suit, and cannot be cured retroactively. Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1364 (Fed. Cir. 2010). A plaintiff must be a patentee or a licensee who holds “all substantial rights in the patent” to have standing. H.R. Techs., Inc. v. Astechnologies, Inc., 275 F.3d 1375, 1384 (Fed. Cir. 2002) (quotations omitted). A court can assess subject matter jurisdiction and the issue of standing at any time. Fed.R.Civ.P. 12. Each element for standing “must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation.” Lujan, 504 U.S. at 561.

If a defendant makes a “factual attack” upon the court's subject matter jurisdiction over the lawsuit, the defendant submits affidavits, testimony, or other evidentiary materials. In the latter case a plaintiff is also required to submit facts through some evidentiary method and has the burden of proving by a preponderance of the evidence that the trial court does have subject matter jurisdiction.

Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981)). “A motion under 12(b)(1) should be granted only if it appears certain that the plaintiff cannot prove any set of facts in support of his claim that would entitle him to relief.” Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998). When evaluating patent standing, courts consider a party's prudential standing and constitutional standing. Mosaid Techs. Inc. v. Freescale Semiconductor, Inc., 2012 WL 12903081 at *2 (E.D. Tex. May 14, 2012)

         ANALYSIS

         I. E-System Has Prudential Standing

         Mentor argues that E-System does not have sufficient rights in the '232 Patent to have prudential standing. E-System counters that the Agreements grant E-System sufficient rights to the '232 Patent needed for prudential standing.

         A patent “is, in effect, a bundle of rights which may be divided and assigned, or retained in whole or part.” Alfred E. Mann Found. for Scientific Research v. Cochlear Corp., 604 F.3d 1354, 1360 (Fed. Cir. 2010) (citation omitted). “When a sufficiently large portion of this bundle of rights is held by one individual, we refer to that individual as the owner of the patent, and that individual [has prudential standing] to sue for infringement in his own name.” Id. In turn, “[a] patent owner may transfer all substantial rights in the patents-in-suit, in which case the transfer is tantamount to an assignment of those patents to the exclusive licensee, conferring standing to sue solely on the licensee.” Id. at 1358-59 (emphasis added).

         When assessing whether a party has “all substantial rights in the patents-in-suit, ” courts often consider several indicia of ownership (the “Alfred Factors”). Diamond Coatings Techs., LLC v. Hyundai Motor Am., 823 F.3d 615, 619 (Fed. Cir. 2016); Alfred, 604 F.3d at 1360-61. “‘[T]he nature and scope of the [patentee's] retained right to sue accused infringers [and license the patent are] the most important factor[s] in determining whether an [agreement] . . . transfers sufficient rights to render the [other party] the owner of the patent.'” Diamond Coatings, 823 F.3d at 619 (quoting Alfred, 604 F.3d at 1360-61). Next, “transfer of the exclusive right to make, use, and sell products or services under the patent is vitally important to the assignment.” Alfred, 604 F.3d at 1360 (emphasis added); Diamond Coatings, 823 F.3d at 619. Under the remaining Alfred Factors, courts also consider

the scope of the licensee's right to sublicense, the nature of license provisions regarding the reversion of rights to the licensor following breaches of the license agreement, the right of the licensor to receive a portion of the recovery in infringement suits brought by the licensee, the duration of the license rights granted to the licensee, the ability of the licensor to supervise and control the licensee's activities, the obligation of the licensor to continue paying patent maintenance fees, and the nature of any limits on the licensee's right to assign its interest in the patent.

Alfred, 604 F.3d at 1360-61. The Court will address each of the Alfred Factors in turn.

         A. The Nature and Scope of Georgia Tech's Right to Enforce and License the '232 Patent Support ...


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