- I. Introduction
- II. Academic Technology Commercialization: Statutory and Caselaw Considerations
- A. Academic Inventions and the Unique Statutory Environment
- B. The Federal Circuit’s Prudential Standing Requirement
- C. Prudential Standing and Federal Rules of Civil Procedure
- III. The Federal Circuit’s Prudential Standing Jurisprudence Development in Gensetix
- IV. The University–Licensee Tensions Created by Federal Circuit Caselaw
- V. Prudential Standing: A Unique Challenge for Jointly Owned Inventions
- VI. A Viable Contractual Solution to Address Standing Concerns
- VII. Conclusion
The legal commentators’ recommendations in reaction to the Court of Appeals for the Federal Circuit’s decision in Gensetix, Inc. v. Board of Regents of University of Texas System are consistent: for a company that wants to exclusively commercialize a university’s patent, like for drug development, the company must obtain an all-fields exclusive license. Otherwise, it risks losing standing to bring a patent infringement suit if the university, the patentee, for some reason cannot be joined in the suit. On the other hand, the Association of University Technology Managers (AUTM) in its practice manual cautioned that if a university grants a licensee too many rights in an exclusive license, it risks violating the Bayh–Dole Act. How did this “catch-22” type of dilemma come about? How do we solve it? This Comment will answer these two questions.
Patents are commonly commercialized through licensing relationships, where the patentee licenses the patent rights to one or more licensees. A patent may be licensed in a variety of ways, including licensing to a single exclusive licensee, multiple exclusive licensees in different fields of use or geographical areas, or multiple non-exclusive licensees. A patentee may also, under some circumstances, be willing to allow an exclusive licensee to enforce the licensed patent(s) against third-party infringers.
However, an exclusive licensee’s standing in bringing a patent infringement action is full of perils—especially when the patentee does not wish to join as a coplaintiff. Currently, a licensee needs to satisfy not only the Article III “constitutional standing” standard (injury, causation, and redressability) but also the judicially created “prudential standing” standard under a multi-factor “all substantial rights” test. This prudential standing requirement has generated much uncertainty in patent infringement litigations, and at least one legal scholar has called for its abolishment.
This Comment provides a renewed assessment of the prudential standing requirement in light of the Federal Circuit caselaw development in 2020 and discusses the undesirable tension it creates between universities and industry licensees in the context of academic technology commercialization and university–industry collaborations. In essence, under the prudential standing requirement established by the Federal Circuit’s caselaw, if an industry licensee wants to ensure standing to sue without worrying about whether or not the university patent-owner licensor can be joined in a future suit, it must possess nearly all substantial rights under an all-encompassing exclusive license, which would be “tantamount to an assignment.” However, under the Bayh–Dole Act a university is prohibited from assigning federally funded patent rights without the government’s approval and should not, without a sound reason, grant a broad exclusive license. Therefore, the prudential standing requirement creates an inevitable tension between an industry licensee’s legitimate interest in having an ability to sue infringers and a university’s statutory obligations and academic missions.
This Comment will proceed as follows: Part II provides background on academic technology commercialization and an overview of the prudential standing requirement. Part III offers an in-depth analysis of a Federal Circuit decision in July 2020 and argues that this decision may have created a viable pathway for an exclusive licensee to circumvent the prudential standing requirement. Part IV addresses whether the prudential standing requirement might create incentives that are detrimental to the successful commercialization of university inventions and at odds with a university’s statutory obligations under the Bayh–Dole Act. Part V explores the tension between the Federal Circuit’s prudential standing requirement and its stance on a patent-co-owner-initiated infringement, especially regarding commercialization of an invention jointly created by multiple universities, a common scenario in the academic world. Lastly, based on the concerns raised above, Part VI explores a feasible alternative to the prudential standing requirement: so long as a licensor contractually agrees in an exclusive license agreement to join an infringement suit, the court should allow the licensee’s infringement suit to go forward, whether or not the patentee has complied with its contractual agreement to be a party to the suit.
II. Academic Technology Commercialization: Statutory and Caselaw Considerations
A. Academic Inventions and the Unique Statutory Environment
The U.S. Congress, with bipartisan efforts, passed the Bayh–Dole Act in 1980. Amid concerns of slowed productivity and economic recession at the time, this piece of legislation aspired “to promote the utilization and commercialization of inventions made with Government support” and to promote the economy and competition by fostering innovation.
1. The Inert Era Before the Bayh–Dole Act
Before the passage of the Bayh–Dole Act, all federally funded inventions were owned by the federal government, and their commercialization was virtually nonexistent. The reasons for this pre-Bayh–Dole dilemma are threefold. First, the federal government then held the idea that no company should monopolize inventions funded by public tax dollars and thus was unwilling to grant exclusive licenses to the industry. Although this notion was well intended, it defied the logic of the market: Without a guaranteed exclusionary right to recoup its costs and earn financial benefits, no for-profit entity would invest in commercializing a technology where its competitors could obtain another license and take a “free ride” on its investment in commercial research and development. Second, commercialization of academic inventions, which are mostly in their infant stages, demands active participation by the university inventors. However, the federal government, because of physical and structural distances, did not have ongoing relationships with individual academic inventors and thus was not in a position to ensure a productive collaboration between an industry licensee and academic inventors. Third, the lack of a uniform patent policy across the federal government was proven to be unconducive for streamlined translation of academic inventions into commercial success.
2. The Impacts of the Bayh–Dole Act
In short, the Bayh–Dole Act allows universities to elect title to inventions developed under federal funding and thus empowers individual universities to manage and commercialize intellectual property created by their researchers. This approach was designed to resolve the aforementioned three pre-Bayh–Dole dilemmas that impeded smooth technology commercialization and to maximize the power of innovation. However, the Bayh–Dole Act is not a free pass of intellectual property ownership to universities. In consideration of granting ownership interest in federally funded inventions, it imposes numerous statutory mandates on universities, including: (1) reporting inventions to the sponsoring federal agency; (2) electing title in writing; (3) timely seeking patent protection; (4) granting a nonexclusive license to the U.S. government; (5) promoting “the invention’s utilization, commercialization, and public availability”; (6) not assigning the invention without approval by the sponsoring federal agency; (7) splitting licensing income with inventors; (8) contributing the institutional share of licensing income towards its academic missions; and (9) giving “preference” to small business entities and U.S. domestic industry. Noncompliance with those Bayh–Dole mandates could have serious consequences on the university, ranging from losing title to the invention to discontinued federal funding.
According to the views of its proponents, the positive and profound impacts of the Bayh–Dole Act are significant. It has been referred to as “[p]ossibly the most inspired piece of legislation to be enacted in America over the past half-century.” As compiled and reported by AUTM in 2017, academic technology commercialization, which is said to be largely stimulated by the Bayh–Dole Act, contributed billions to the U.S. economy, sustained millions of employment opportunities from 1996 to 2015, led to more than 380,000 invention disclosures and 80,000 issued U.S. patents since 1992, created more than 11,000 startup companies since 1995, and catalyzed the development of over 200 medicines and vaccines after 1980. In light of these benefits, it should be no surprise that the Bayh–Dole Act’s success inspired many countries around the world to adopt the U.S. model and pass legislation similar to the Bayh–Dole Act.
3. Increased Academic Collaboration and Management of Jointly Owned Inventions
Following the passage of the Bayh–Dole Act in the 1980s, the world has become increasingly interconnected, and collaborations between researchers from different academic research institutions are routine and frequent. This collaboration often leads to jointly developed inventions that are co-owned by the collaborating institutions. Some of the collaborations have already led to valuable products and commercial success.
Also, because the Bayh–Dole Act allows each institution to retain title to its own inventions, this framework provides the academic institutions with the freedom to manage jointly created inventions between them. To effectively commercialize a jointly owned invention, collaborating institutions normally enter into an inter-institutional agreement (IIA). The IIA will appoint one institution to take the lead in: (1) marketing the joint invention and searching for a suitable licensing partner; (2) managing the patent prosecution; (3) negotiating the license agreement in consultation with other co-owner institutions; and (4) managing license revenue distribution among the collaborating institutions. Also, in the IIA, the co-owner institutions will each grant an exclusive license, under their respective ownership interests in the joint invention, to the leading institution, so it is empowered to fulfill its obligations and act on behalf of other institutions in commercializing the joint invention. This IIA model is beneficial and necessary because all the collaborating institutions can speak through “one voice,” and the industry licensee only needs to negotiate one license agreement (instead of separate agreements with individual co-owners to secure exclusivity). Under the IIA model, the leading institution is both a co-owner and an exclusive licensee under other co-owners’ interests in the joint invention. The leading institution’s dual identity might carry intriguing implications under the Federal Circuit’s prudential standing jurisprudence and will be explored in depth in Part V.
B. The Federal Circuit’s Prudential Standing Requirement
One of the fundamental benefits for a company to exclusively license a university patent is the ability to exclude others from the scope of the granted license, and this exclusivity can ultimately be enforced through patent infringement actions against unlicensed third parties. In these patent infringement actions, the company, as the exclusive licensee, must have some level of standing to sue alleged infringers under the licensed patent.
A plaintiff must satisfy the standing threshold in every litigation, in patent cases as well as nonpatent cases. At a minimum, (1) the plaintiff must have suffered an “injury in fact”; (2) “there must be a causal connection between the injury and” defendant’s conduct; and (3) the injury must be “likely” to be redressable by the court. On top of the constitutional standing requirement, courts have adopted an added level of scrutiny as a gatekeeping function, namely prudential standing. In patent cases, the Federal Circuit has developed a unique prudential standing jurisprudence. Under the federal patent law, “[a] patentee shall have remedy by civil action for infringement of his patent.” “Patentee” is statutorily defined to include “not only the patentee to whom the patent was issued but also the successors in title to the patentee.” Although an exclusive licensee is not included under the patentee definition, the Federal Circuit has “permitted an exclusive licensee to bring suit in its own name if the exclusive licensee holds ‘all substantial rights’ in the patent,” because the Federal Circuit deems such an exclusive licensee equivalent to an assignee within the statutory definition. Over the years, Federal Circuit caselaw has established a multi-factor test for analyzing a license agreement to determine if an exclusive licensee possesses all substantial rights. The court in Gensetix, Inc. v. Baylor College of Medicine summarized the nine relevant factors:
(1) whether the licensor retained the right to sue; (2) if the licensor retained the right to freely license the patent; (3) the scope of the licensee’s right to sublicense; (4) the nature of the license provisions regarding the reversion of rights to the licensor following breaches of the license agreement; (5) the right of the licensor to receive a portion of the recovery in infringement suits; (6) the duration of the license; (7) the ability of the licensor to supervise and control the licensee’s activities; (8) the obligation of the licensor to continue paying patent maintenance fees; and (9) the nature of any limits on the licensee’s right to assign its interests in the patent.
Notably, the Federal Circuit insisted on a substantive review of the license agreement provisions when weighing those factors. Consequently, a mere contractual clause purporting to grant a licensee the right to sue infringers, by itself, is not sufficient for a licensee to satisfy the prudential standing requirement. In Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., the license agreement at issue provided the nonexclusive licensee a right to bring suit if the patentee failed to do so. The Federal Circuit held that this right-to-sue clause did not give the licensee standing to sue in its own name, reasoning that “a contract cannot change the statutory requirement for suit to be brought by the ‘patentee.’” Further, the Federal Circuit affirmed a district court’s ruling that, despite a purported right-to-sue clause, an exclusive licensee lacked standing to sue because the “License Agreement contains no explicit grant of the right to manufacture licensed products or otherwise to practice the [licensed patent]” and the licensor retained significant control.
In practice, prudential standing brings much uncertainty into a patent infringement case, partly because the courts may raise the standing issue sua sponte after the parties have spent years on litigation and appeals. At least one legal scholar, Professor Xuan-Thao Nguyen, has pointedly criticized the Federal Circuit’s insistence on prudential standing and stated: “By insisting upon the application of its invented and poorly defined ‘all substantial rights’ standard, the Federal Circuit has further deepened the standing crisis and added to the uncertainty facing litigants and all parties to a patent licensing agreement.”
C. Prudential Standing and Federal Rules of Civil Procedure
Facing an uncooperative patentee, an exclusive licensee that does not have “all substantial rights,” and thus lacks prudential standing, is not without remedy. The Supreme Court confronted this issue in Independent Wireless Telegraph Co. v. Radio Corp. of America and held that such a licensee might seek judicial process to join the patentee as a coplaintiff, involuntarily as it may be, because the patentee is an indispensable party to a patent infringement case. This principle in Independent Wireless served as a basis for the involuntary joinder codified in Rule 19 of the Federal Rules of Civil Procedure (Rule 19), and the Federal Circuit has expressly adopted Independent Wireless and Rule 19 in its prudential standing jurisprudence.
Accordingly, under Federal Circuit caselaw, when an exclusive licensee lacks prudential standing, it may seek to have the patentee involuntarily joined pursuant to Rule 19(a). If the patentee somehow cannot be joined (for example, due to immunity), Rule 19(b) provides an alternative option where the court must engage in a four-factor balancing test to “determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.”
On the other hand, in contrast to an exclusive licensee situation, the Federal Circuit in STC.UNM v. Intel Corp. held that a patent co-owner could not join other co-owners involuntarily under Rule 19 because the patent substantive right overrode the procedural rights. The Federal Circuit recognized two cautions about this rule: (1) it does not apply when a licensee seeks to join a patent owner; and (2) it does not apply when a co-owner has waived its right to “refuse to join suit.” Although the STC.UNM holding remains valid, some Federal Circuit judges have seriously questioned this special exclusion of Rule 19 as to patent co-owners because: (1) Rule 19 is “mandatory” and “not permissive”; (2) this exclusion was based on dubious Federal Circuit precedents and lacked proper statutory basis; and (3) it would prescribe unique rules for patent cases against the Supreme Court’s holding in nonpatent cases. This plaintiff-specific application of Rule 19 would lead to yet another question: What happens to a patent co-owner plaintiff who is also an exclusive licensee of rights from other co-owners? Should the dual-identity plaintiff be able to rely on Rule 19 to join other co-owner licensors, or should the plaintiff be barred from joining other co-owners under STC.UNM? These questions are particularly relevant for jointly owned academic inventions and will be explored in Part V of this Comment.
III. The Federal Circuit’s Prudential Standing Jurisprudence Development in Gensetix
A. Factual and Procedural Background of the Gensetix Case
According to the pleadings in Gensetix, Gensetix, Inc. was an exclusive licensee of University of Texas MD Anderson Cancer Center (UT) for two cancer-therapeutic patents invented by Dr. William K. Decker while he was employed by UT. UT, as the employer, owned the two patents. Dr. Decker later left UT and joined Baylor College of Medicine as a faculty member. Among other claims, Gensetix alleged that Dr. Decker practiced the licensed patents in his continued academic research and sued Dr. Decker and his new employer (collectively “Baylor”) for patent infringement. UT, as the patent owner, declined to join Gensetix’s suit, likely because it was asserted against a peer academic institution and would impede academic research. Subsequently, Gensetix sought to join UT as an involuntary plaintiff under Rule 19(a).
B. The District Court’s Dismissal
First, the district court held that UT, as part of the State of Texas, enjoys sovereign immunity under the Eleventh Amendment. Because UT did not waive its sovereign immunity in this case, the federal court lacked the power to compel UT to join the litigation involuntarily. Upon reviewing the license agreement between UT and Gensetix, the court found Gensetix did not possess all substantial rights in the patent because UT retained certain critical rights and controls. Among those, the court pointed to UT’s retained rights for academic purposes, namely “the right to . . . use licensed subject matter for research, teaching, or other academic purposes, and transfer [use] rights to other research institutions for non-commercial research use.” Consequently, Gensetix, as a licensee, lacked prudential standing to sue without the patentee. The court proceeded to analyze if Gensetix could nonetheless sustain the case under Rule 19(b)'s balancing test, since joinder of UT under Rule 19(a) was unfeasible due to its immunity status. The court considered the following four factors set out by Rule 19(b):
(1) the extent to which a judgment rendered in the person’s absence might prejudice that person or the existing parties; (2) the extent to which any prejudice could be lessened or avoided by: (A) protective provisions in the judgment; (B) shaping the relief; or (C) other measures; (3) whether a judgment rendered in the person’s absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.
The court found that: (1) UT would surely be prejudiced because the defendants could challenge the validity of the patents, and the result could then be an invalidity judgment that binds UT; (2) Gensetix failed to provide any options to lessen prejudice against UT; (3) rendering a judgment in UT’s absence would not be adequate because Baylor was at risk of multiple litigations under the identical patents; and (4) Gensetix would not have an adequate remedy for the alleged infringement because patent infringement could only be adjudicated in federal courts. Because only the last factor was in favor of Gensetix, the court ruled for the case to be dismissed. Gensetix appealed the decision to the Federal Circuit.
C. The Federal Circuit’s Partial Reversal
On appeal, the Federal Circuit three-judge panel affirmed the district court’s finding that UT’s sovereign immunity shielded UT from involuntary joinder. However, the Federal Circuit panel majority disagreed with the district court on its Rule 19(b) analysis and concluded that “the district court abused its discretion by collapsing the multi-factorial Rule 19(b) inquiry into one dispositive fact: UT’s status as a sovereign.” In reaching this conclusion, the panel majority reasoned that:
[(1)] As to the prejudice to UT, the interests of UT and Gensetix are aligned [because Gensetix has an exclusive license in every field and is thus incentivized to adequately protect UT’s interests for patent validity]. [(2)] Despite UT’s sovereign status, given Gensetix’s identical interest in the validity of the patents-in-suit, any prejudice to UT is greatly reduced. [(3)] There is also no risk of multiple suits because, under the express terms of the parties’ agreement, UT may not sue Baylor once Gensetix has commenced litigation. And, [(4)] as an exclusive licensee with less than all substantial rights in the patents-in-suit, Gensetix cannot enforce its patent rights without the court allowing the suit to proceed in UT’s absence.
Therefore, the Federal Circuit panel majority remanded the case to the district court for further proceedings without UT. Baylor petitioned for en banc rehearing, but the Federal Circuit denied.
Interestingly, although it was undisputed that Gensetix lacked all substantial rights in the patents-in-suit, the Federal Circuit majority did not address the issue of Gensetix’s prudential standing defect. The silence on the standing issue leaves open the possibility for it to be further litigated on remand. In view of judicial economy, it is hard to imagine that the Federal Circuit would remand the case if it foresees that the case will likely be dismissed again in the district court for lack of prudential standing. Meanwhile, it is somewhat mysterious for the Federal Circuit panel to sidestep a clear ruling on the standing implications. Whether or not Gensetix is an indication of a tacit “defiance” to the Federal Circuit’s prudential standing jurisprudence remains to be seen. Still, the holding provides Rule 19(b) as a viable option for an exclusive licensee to sustain an infringement action when the patentee cannot be joined.
D. Gensetix’s Aftermath
The Federal Circuit’s Gensetix decision indicates that the absence of prudential standing is not an absolute bar for an exclusive licensee to sustain a patent infringement case without the patentee. Based on the Federal Circuit panel majority’s reasoning, the Gensetix decision further reinforces a company’s incentive to obtain an all-encompassing exclusive license from a university to preserve its standing in bringing a patent infringement suit in the company’s own name alone. Also, it puts a university’s reservation of rights for academic purposes in the spotlight for determining a licensee’s standing, which gives a company licensee more incentives to restrict the scope of reservation.
IV. The University–Licensee Tensions Created by Federal Circuit Caselaw
A. The Conflict Due to Universities’ Statutory and Contractual Obligations
As illustrated in Part II, under Federal Circuit caselaw, if an exclusive licensee desires to ensure prudential standing to sue infringers without the patentee, it must possess all substantial rights. The Federal Circuit interprets the transfer of all substantial rights as an assignment. However, the Bayh–Dole Act expressly prohibits universities from assigning federally funded inventions to industry licensees without approval, and the approval, although theoretically possible, may be a lengthy process and subject to the agency’s discretion. Indeed, to maintain compliance with the Bayh–Dole Act, AUTM has recommended universities reserve the following rights in a license agreement to avoid assignment: (1) the rights for the licensor university and other nonprofit/governmental institutions to utilize the inventions for academic purposes; (2) the licensor’s rights to terminate the agreement if the licensee falls short of satisfying certain commercialization diligence milestones; (3) the licensor’s rights to approve any proposed assignment of the license agreement by the licensee; and (4) the licensor’s rights to instigate infringement actions. Each one of these rights, if reserved by a university in compliance with the Bayh–Dole Act, could prevent a licensee from owning all substantial rights and deprive it of prudential standing under Federal Circuit caselaw, resulting in tensions between a litigation-averse university and its licensee.
In addition to the express prohibition on assignment, the Bayh–Dole Act’s policy objectives also caution universities against readily granting sweeping exclusive licenses. Under the Act, as one of the “quid pro quos” for allowing a university to retain title in federally funded inventions, a university is expected to “[p]romote the invention’s utilization, commercialization, and public availability.” Arguably, an exclusive license inherently limits public access to an invention because it usually entitles the licensee to exclusivity in manufacture and use. Partly because of this policy consideration, a university typically would not grant an exclusive license to a potential licensee in the absence of a sound business plan to diligently commercialize the patented invention. Also, a university may reserve the right to terminate the license agreement in the event that a licensee fails to meet its commercialization diligence. In sum, the Bayh–Dole policy consideration may be at odds with a licensee’s desire to secure all substantial rights.
Additionally, the Bayh–Dole Act directs universities to give preference to small businesses as licensees of federally funded inventions, and many universities do execute a substantial number of license agreements with startup companies. However, given the fragile nature of any new venture, a university has even stronger incentives to retain substantial control in a license agreement with a startup company; for example, universities typically limit the field of use for a startup license due to the concern that a startup lacks necessary means to commercialize a technology to its full potential. If a small business licensee feels compelled to secure all substantial rights for standing reasons, it would risk an impasse with a university licensor and would undermine this Bayh–Dole statutory objective.
Lastly, although federal funding usually constitutes the major funding source for a university, university research and innovation also receives support from state funding. Like the federal government, state sponsors often disfavor or outright prohibit a university from assigning their funded inventions during commercialization. Therefore, a licensee’s desire for all substantial rights runs into the same challenges for nonfederally funded inventions because a university licensor is also bound by its agreements with the nonfederal sponsors, which often preclude assignment.
B. The Conflict Due to Universities’ Reservation of Rights
In the Gensetix case, the district court cited UT’s reserved rights for academic research freedom purposes as one of the reasons to find that Gensetix did not enjoy all substantial rights. In university technology commercialization, it is standard practice to retain rights for the university and other nonprofit institutions to use the licensed invention for research, education, and publications so that licensing a technology exclusively to a licensee does not impede its continued noncommercial use in academia. In fact, several leading universities, along with the Association of American Medical Colleges, designated this reserved right as the top consideration when licensing university technologies.
As revealed by Gensetix, although it may not carry determinative weight, a university’s standard reservation of rights has the potential to jeopardize a licensee’s prudential standing. In practice, in an effort to maximize control, an exclusive licensee is already incentivized to restrict the rights retained by a university licensor. Now, the licensee has one more reason to push against a university for its reserved rights due to standing concerns. If universities give in to this pressure, this could lead to a dangerous path. For example, one critical consideration of having the reserved rights is to shield the licensor university, its researchers, and other academic institutions against a licensee zealously asserting patent rights. Without sufficient reservation protection, a licensee could drag the licensor university, its researchers, and other nonprofit institutions into a costly and protracted litigation. That would not only deprive the university of financial resources that could be used to further education and research but also distract the university and its researchers from their academic missions.
V. Prudential Standing: A Unique Challenge for Jointly Owned Inventions
As discussed in Section II.A.3, commercialization of a jointly owned invention under an IIA is a common scenario in academic technology commercialization. However, the IIA model presents unique standing questions.
A. The Possibility of Having a Co-Owner that Enjoys Immunity
An academic joint invention may have multiple co-owners, some of which may be state or foreign institutions, presenting Rule 19(a) joinder challenges. As made clear by the Federal Circuit in Gensetix, a state university’s sovereign immunity under the Eleventh Amendment shields it against Rule 19(a) joinder. Also, if a foreign university is an arm of a foreign state, it plausibly can assert foreign sovereign immunity against involuntary joinder, although such claim would be subject to the Foreign Sovereign Immunities Act (FSIA) and may require complicated analysis. Therefore, as a licensee for a patent jointly owned by multiple academic institutions, any institution’s sovereign immunity status could jeopardize joinder under Rule 19(a) and, in turn, create prudential standing concerns.
B. The Tension Between Prudential Standing and the IIA Model
The Federal Circuit’s prohibition against involuntarily joining a patent co-owner imposes litigation uncertainties for a jointly developed academic invention. In a hypothetical scenario where both the industry licensee and the leading institution consent to bring an infringement suit but one co-owner institution refuses to join, that would place the Rule 19 involuntary joinder in uncharted territory under the Federal Circuit jurisprudence due to the leading institution’s dual identity (both a licensee under the IIA with the co-owner institution and a co-owner itself of the jointly developed patent). On one hand, an exclusive licensee may seek joinder of an unwilling patentee, so the leading institution should be able to join the co-owner institution under the licensee–licensor relationship under the IIA. On the other hand, under Federal Circuit caselaw, a patent co-owner lacks the option to involuntarily join other co-owners under Rule 19, with the exception where the target co-owner waived the right to “refuse to join suit.” An IIA typically uses open-ended language that lacks particularity on patent infringement procedures. Therefore, current academic IIAs likely fall short of addressing whether a co-owner institution waives its objection to joinder by the leading institution. Consequently, the leading institution, as a patent co-owner, might be unable to join another co-owner institution in an infringement suit. On balance, because the Federal Circuit appears to recognize a licensor–licensee relationship as an exception to the STC.UNM rule, the leading institution may succeed in involuntarily joining an uncooperative co-owner institution. Nevertheless, the Federal Circuit has not directly confronted this licensee–co-owner dual identity issue yet. Therefore, the Federal Circuit’s bifurcated approach to Rule 19 joinder, as part of its prudential standing jurisprudence, may still put a leading institution in limbo and create added complexity that could hinder successful commercialization of jointly developed academic inventions.
VI. A Viable Contractual Solution to Address Standing Concerns
A. The Reality of the Federal Circuit’s Jurisprudence on Prudential Standing
Although the Federal Circuit’s prudential standing jurisprudence has been questioned and criticized, it is backed by valid policy considerations and continuously applied by the Federal Circuit. Therefore, prudential standing is likely to stay for the foreseeable future. In view of its specific challenges on commercialization of academic inventions, Professor Rooksby advocated a legislative amendment to the Patent Act so that a university patentee would not be required to join a licensee’s infringement suit to satisfy prudential standing:
Legislative change to the Patent Act could offer universities a way out of assertive infringement litigation without upsetting other important balances struck in the technology transfer system. Under my proposal, in exchange for ceding enforcement authority to their exclusive patent licensees, universities would not be required to join as plaintiffs in infringement actions involving those patents. If a university declined to join its exclusive licensee in a given lawsuit against a given defendant, the university would be prohibited from suing the same defendant for the same alleged act of patent infringement at a later time. Universities would retain the option to join infringement lawsuits brought by their exclusive licensees, but avoid the obligation.
However, it is unclear whether this sensible proposal has gained traction or attention on Capitol Hill. Therefore, judicial and legislative solutions are likely not in sight.
B. A Potential Contractual Solution
The Federal Circuit in Ortho Pharmaceutical Corp. made it clear that a patentee could not confer standing to sue to a licensee merely through “a right to sue clause” in the license agreement because “a contract cannot change the statutory requirement for suit to be brought by the ‘patentee.’” Therefore, a different contractual solution needs to be devised. Typically, an academic exclusive license agreement will have an elaborate clause on infringement procedures, including who is the first party to have control over the action, when the control will switch to the other party, and how the parties collaborate and share costs and proceeds. The parties may choose to address the standing issue by adding to the infringement procedure that, when it is the industry licensee’s turn to control the infringement action, the university licensor shall join the licensee’s infringement action (hereinafter the “Promise-to-Join Clause”). The Promise-to-Join Clause will first provide the licensee with a contractual assurance, and the licensee could have a contract claim against the licensor if the licensor refuses to join.
Even if the licensor reneges on its promise to join and cannot be involuntarily joined under Rule 19(a), the licensee likely can leverage the Promise-to-Join Clause in successfully petitioning the court to allow its infringement case to go forward under the Rule 19(b) four-factor test. For the first factor, the licensor would not have a valid argument for prejudice because it contractually agreed to join such a suit and now reneged on the promise. For the second factor, any prejudice against the licensor would be minimal, so it would strongly favor allowing the case to proceed. For the third factor, so long as the license agreement prohibits the licensor from commencing a separate action against the defendant, like the structure in the UT–Gensetix agreement, a judgment in the licensor’s absence would be adequate, and the defendant would not face multiple suits. For the fourth factor, an exclusive licensee would not have an adequate remedy against the defendants and enjoy the bargain it has with the licensor, especially when the licensor promised to join the licensee’s suit. Therefore, with the licensor’s contractual promise to join a licensee-instigated suit, all the Rule 19(b) factors and overall equity will strongly favor allowing the licensee to proceed with its infringement action in the absence of the licensor. The Promise-to-Join Clause will thus provide the licensee with two-layered security (contract and Rule 19(b)) to prevent its infringement action from being dismissed due to lack of prudential standing.
Last but not least, the Promise-to-Join Clause is consistent with the Federal Circuit’s reasoning in Ortho Pharmaceutical Corp., where the offending clause sought to use a private contract to change the statutory standing requirement mandating the patentee’s presence. Here, however, the Promise-to-Join Clause is different because it is endeavoring to conform to that statutory requirement by bringing the patentee to the suit.
C. Benefits of the Contractual Solution
The Promise-to-Join Clause has many benefits for both sides. First, this solution takes the standing issue out of the business considerations of a license agreement. Without the standing concern as a convoluting factor, a university will be in a better position to carry out the Bayh–Dole policy objectives. For example, a university can grant a limited field license that is suitable for the licensee’s business plan and capabilities without the licensee’s counsel fearing that such a less-than-all field license would deprive the licensee’s ability to arrange for infringement actions. Additionally, a company will have fewer incentives to restrict a university’s retention of rights for its academic missions. Second, adding this clause to the license agreement negotiation will allow the parties an opportunity to address the standing issue early on and think through how an infringement suit should be handled and controlled, which would save both parties much cost and frustration down the road. Third, a contractual solution would ease a company’s anxiety when working with state or foreign academic institutions, including jointly created academic inventions where a state or foreign institution is a co-owner, and in turn, promote and strengthen academic technology commercialization.
D. Limitations of the Contractual Solution
The Promise-to-Join Clause is not without limitations. First, in any contractual negotiation, it is always possible that the parties may not agree on the provision or that the mutually agreed upon provision becomes too compromised to render it effective. Second, even though the proposed Promise-to-Join Clause is backed by a sound rationale as illustrated above, the Rule 19(b) analysis is a multi-factor balancing test likely at a district court’s discretion; therefore, no outcome may be predicted in certain terms. Nevertheless, unless either the courts or Congress take initiative to address the unique challenges posed by prudential standing on academic technology commercialization, this contractual solution might be the best available option for both universities and their prospective industry partners.
Gensetix revealed how the Federal Circuit’s prudential standing requirement presented unique challenges for both a university licensor and an industry licensee that are engaged in academic technology commercialization. For a university licensor, because of statutory compliance obligations and academic missions, a university most likely cannot grant an exclusive license that transfers all substantial rights to an industry licensee to enable that licensee to instigate patent infringement actions independently. For an industry licensee, it has a legitimate interest in protecting its exclusive enjoyment of the licensed patent rights and certainly does not wish to be deprived of the standing to sue in the licensee’s own name. To be sure, this tension only becomes irreconcilable when the licensor and licensee cannot agree on bringing the action, and the licensor cannot be involuntarily joined (for example, when the licensor has sovereign immunity). However, that might not be an uncommon scenario, and it is exactly what transpired in Gensetix.
As illustrated by this Comment, in the wake of Gensetix, an industry licensee may be more aggressively motivated to press for “control” in negotiations with a university. If the university yields to such demands to preserve the deal, that could jeopardize its compliance with the Bayh–Dole Act and expose the university to severe penalties. Also, if the university compromises on its reservation of rights for academic freedom, it increases the risk that a licensee might use an academically created patent to stifle research in other universities and institutions. To resolve the dilemma, this Comment explored a pragmatic contractual solution that could meet the legitimate needs of both sides. Nevertheless, given the vital importance of academic technology commercialization in promoting innovation and economic prosperity, Congress should consider a legislative amendment, like what Professor Rooksby advocated, to harmonize the Bayh–Dole Act objectives with the patent infringement litigation reality in the federal court system.
Qinxi “Andy” Guo
The Federal Circuit is the specialized patent appellate court. U.S. Ct. Appeals for Fed. Cir., https://cafc.uscourts.gov/wp-content/uploads/FederalCircuitBrochure.pdf [https://perma.cc/4252-WTPA] (last visited Jan. 10, 2022) (stating that the Federal Circuit is “unique among the thirteen Circuit Courts of Appeals,” with “nationwide jurisdiction” concerning patent litigations and intellectual property matters accounting for 67% of its docket).
Dani Kass, Fed. Circ.'s UT Immunity Ruling Places Licensing in Spotlight, Law360 (July 31, 2020, 5:02 PM), https://www.law360.com/articles/1295678/fed-circ-s-ut-immunity-ruling-places-licensing-in-spotlight [https://perma.cc/V3NG-SQJY] (citing two legal commentators’ notion that having an exclusive licensee in every field is “key [for the licensee] to being able to sue without joinder”); Thomas Carey, When a State University Is a Reluctant Plaintiff, Can Its Licensee Sue Anyway?, JD Supra (Oct. 1, 2020), https://www.jdsupra.com/legalnews/when-a-state-university-is-a-reluctant-21073/ [https://perma.cc/WRH3-QBT2] (noting “an exclusive license in all fields” as an important practical consideration in view of the Federal Circuit’s Gensetix decision).
David M. Kettner, The Bayh-Dole Act, in 1 AUTM Tech. Transfer Prac. Manual 14–15 (3d ed. 2006) (discussing the Bayh–Dole Act’s restriction on assignment by nonprofit organizations and noting that “[i]f a purported license grants too many rights in a technology to a licensee, the agreement may ultimately be construed to grant an assignment in violation of Bayh-Dole”).
Alexander I. Poltorak & Paul J. Lerner, Essentials of Licensing Intellectual Property 2–3, 48–50 (2004).
Id. at 48–49.
Kirsten Leute, Anatomy of a License Agreement, in 4 AUTM Tech. Transfer Prac. Manual 15–17 (3d ed. 2010); John Haynes & Lindsay C. Church, Drafting Exclusive Patent Licenses and Standing Considerations, Bloomberg L. (Feb. 13, 2018, 2:55 PM), https://news.bloomberglaw.com/ip-law/drafting-exclusive-patent-licenses-and-standing-considerations [https://perma.cc/F9SQ-PLSC].
Carey, supra note 2.
H. Rachael Million-Perez, Post-Lexmark: Status of Prudential Standing in Patent Law, 49 Suffolk U. L. Rev. 227, 230–39 (2016).
See Xuan-Thao Nguyen, Patent Prudential Standing, 21 Geo. Mason L. Rev. 17, 57 (2013) (“By insisting upon the . . . ‘all substantial rights’ standard, the Federal Circuit has . . . added to the uncertainty facing litigants and all parties to a patent licensing agreement. It is therefore time for the Federal Circuit to retreat from patent prudential standing . . . .”).
Alfred E. Mann Found. v. Cochlear Corp., 604 F.3d 1354, 1358–59 (Fed. Cir. 2010).
See Kettner, supra note 3, at 4, 13 (“The Bayh-Dole Act obligates the nonprofit organization or small business to promote the utilization, commercialization, and public availability of those inventions in which title is retained.”).
Id. at 14–15. See generally Russell E. Levine et al., Who Has Standing to Sue Third-Party Patent Infringers and the Factors Affecting Standing that Every Technology Manager Should Know, 19 J. Ass’n U. Tech. Managers 1 (2007).
Pub. L. 96–517, § 6(a), Dec. 12, 1980, 94 Stat. 3019; Vicki Loise & Ashley J. Stevens, The Bayh-Dole Act Turns 30, Sci. Translational Med., Oct. 6, 2010, at 1, 1; see Bayh-Dole Act, AUTM, https://autm.net/about-tech-transfer/advocacy/legislation/bayh-dole-act [https://perma.cc/V4BE-92MT] (last visited Oct. 31, 2020); Bernadette Tansey, The Building of Biotech / 25 Years Later, 1980 Bayh-Dole Act Honored as Foundation of an Industry, SFGATE (June 21, 2005), https://www.sfgate.com/business/article/The-building-of-biotech-25-years-later-1980-2660978.php [https://perma.cc/J5UQ-M7CY].
S. Rep. No. 96-480, at 1–3 (1979).
Id. at 18–20 (“It has been well demonstrated over a number of years that Federal agencies are not as successful in delivering new products and inventions to the marketplace as the private sector. The result is that the public is not receiving the full benefits of the research and development efforts that it is supporting.”); id. at 28 (“[T]he [federal] agencies are now licensing less than 4 percent of the 28,000 patents that the Government now owns to private industry for development.”).
Id. (“The central problem seems to be that the agencies seek to issue nonexclusive licenses for these patents which are available to all interested parties.”); Loise & Stevens, supra note 13, at 1.
S. Rep. No. 96-480, at 28 (“Nonexclusive licenses are generally viewed in the business community as no patent protection at all, and the response to such licenses has been lackluster.”); Loise & Stevens, supra note 13, at 1.
Loise & Stevens, supra note 13, at 1.
S. Rep. No. 96-480, at 2–3 (“Presently, there are at least 24 different patent policies in effect in the Federal agencies. These are frequently contradictory from agency to agency (and even sometimes within the same agency) and have proven to be formidable barriers to organizations interested in participation in Government work. The mere complexity of these policies constitutes a very real hurdle to universities, nonprofit organizations, and small businesses who do not have large legal staffs to negotiate through this policy maze.”).
Id. at 3, 5.
Id. at 3, 29–30.
Kettner, supra note 3, at 4.
Id. at 5.
Innovation’s Golden Goose, Economist (Dec. 14, 2002), https://www.economist.com/technology-quarterly/2002/12/14/innovations-golden-goose [https://perma.cc/3WHK-DGAS].
Driving the Innovation Economy, AUTM (June 20, 2017), https://autm.net/AUTM/media/Surveys-Tools/Documents/AUTM_FY2017_Infographic.pdf [https://perma.cc/PHZ6-DVXR]. AUTM’s survey and data present a credible source because, for example, the U.S. General Accounting Office (GAO) relied on AUTM’s survey data in its report on the Bayh–Dole Act. U.S. Gov’t Accountability Off., GAO/RCED-98-126, Technology Transfer: Administration of the Bayh-Dole Act by Research Universities 28 (1998) (“[T]he impact of the Bayh-Dole Act, largely based on annual surveys of research universities conducted by the Association of University Technology Managers (AUTM)”).
See Loise & Stevens, supra note 13.
Barry Bozeman et al., Research Collaboration in Universities and Academic Entrepreneurship: The-State-of-the-Art, 38 J. Tech. Transfer 1, 38 (2013); Elias G. Carayannis & Patrice Laget, Transatlantic Innovation Infrastructure Networks: Public-Private, EU–US R&D Partnerships, 34 R&D Mgmt. 17, 29–30 (2004).
Jeanine Burmania, Identifying and Managing Joint Inventions, in 3 AUTM Tech. Transfer Prac. Manual 1, 2 (3d ed. 2010); Faculty Guide to Commercialization, Baylor Coll. Med. 10, https://media.bcm.edu/documents/2014/74/blg-faculty-guide-to-commercialization-online.pdf [https://perma.cc/2BB9-TYT5] (last visited Jan. 10, 2021).
For example, a collaboration between Washington University and Wisconsin Alumni Reasearch Foundation contributed to AbbVie’s kidney disease drug, ZEMPLAR®. Wash. Univ. v. Wis. Alumni Rsch. Found., 834 F. App’x 699, 700–02 (3d Cir. 2020). It is unfortunate that the two universities ended up in litigation over disputes of royalty revenue sharing, but the litigation also revealed that commercial success stemmed from this jointly created invention. Id. (disclosing that Zemplar generated about $6.1 billion in sales and $426.5 million in licensing royalties to Wisconsin Alumni Research Foundation).
Burmania, supra note 29, at 4, 6–7 (“In an IIA, typically the parties will designate one party to take the lead and be responsible for the patenting and licensing of the invention.”).
See id. at 7 (“Typically IIAs give one party [among the co-owner institutions] exclusive licensing rights.”).
Baylor Coll. Med., supra note 29, at 29.
See Million-Perez, supra note 8, at 231–32.
Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992).
Intell. Prop. Dev., Inc. v. TCI Cablevision of Cal., Inc., 248 F.3d 1333, 1348 (Fed. Cir. 2001) (“In addition to the three-prong Article III standing test delineated in Lujan, standing doctrine embraces judicially self-imposed limits, known as prudential limits, on the exercise of jurisdiction.”); Nguyen, supra note 9, at 28 (“While injury, causation, and redressability are the only constitutional standing requirements, justiciability relating to third party standing and generalized grievances are seen as falling within the prudence of the courts.”).
35 U.S.C. § 281.
35 U.S.C. § 100(d).
See, e.g., Mentor H/S, Inc. v. Med. Device All., Inc., 240 F.3d 1016, 1017 (Fed. Cir. 2001) (first citing Textile Prods., Inc. v. Mead Corp., 134 F.3d 1481, 1484 (Fed. Cir. 1998); and then citing Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 875 (Fed. Cir. 1991)).
Gensetix, Inc. v. Baylor Coll. of Med., 354 F. Supp. 3d 759, 768 (S.D. Tex. 2018), aff’d in part, rev’d in part sub nom. Gensetix, Inc. v. Bd. of Regents of Univ. of Tex. Sys., 966 F.3d 1316 (2020). For additional factors, see Ilan Barzilay & Danielle Bochneak, The Ground on Which You Stand: Lessons in Licensing, 22 Intell. Prop. & Tech. L.J., Sept. 2010, at 1, 5.
Mentor H/S, 240 F.3d at 1017 (“To determine whether an agreement constitutes just an exclusive license or instead also transfers ‘all substantial rights’ in a patent, we must ascertain the intention of the parties and examine the substance of what was granted by the agreement.”).
Ortho Pharm. Corp. v. Genetics Inst., Inc., 52 F.3d 1026, 1034 (Fed. Cir. 1995) (“[T]he license agreements . . . gave [the licensee] the right to bring appropriate suits if [the patentee] did not.”).
E8 Pharm. LLC v. Affymetrix, Inc., 680 F. Supp. 2d 292, 293, 296–97, 299 (D. Mass. 2010), aff’d, 538 F. App’x 902 (Fed. Cir. 2013) (denying the exclusive licensee’s standing to sue even though the licensee has “the right to sue infringers” under the license agreement).
Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359, 1368 (Fed. Cir. 2010) (Newman, J., dissenting) (“The district court, applying the laws of contract and property transfer, held that the three patents in suit were owned by the plaintiff Abraxis when this suit was filed, and that the plaintiff had standing to bring this suit. The defendant did not seek interlocutory review of that ruling; and there have been over three years of litigation, including full trial of infringement of all three patents, and judicial determination of complex questions of law and fact concerning the Hatch–Waxman Act and its application. This court now finds that the plaintiff did not have standing, after all. The court thus erases the trial, nullifies the judgment, cancels the appeal, and sends the case back so that the parties and the district court and this court can do it all again. However, the court has not shown reversible error in the district court’s ruling on the question of standing, a ruling based on state contract and commercial transaction law. Instead, the panel majority creates a new and convoluted law unique to the patent aspect of commercial transactions. No special public policy is served, and no reason exists for creating a new commercial law, divergent from the governing state law, when the subject of the commercial sale is a patent. I must, respectfully, dissent.”); Nguyen, supra note 9, at 24–26.
Nguyen, supra note 9, at 57.
Indep. Wireless Tel. Co. v. Radio Corp. of Am., 269 U.S. 459, 468, 472 (1926) (“The presence of the owner of the patent as a party is indispensable not only to give jurisdiction under the patent laws but also, in most cases, to enable the alleged infringer to respond in one action to all claims of infringement for his act . . . .”).
Fed. R. Civ. P. 19(a)(2) (“If a person has not been joined as required, the court must order that the person be made a party. A person who refuses to join as a plaintiff may be made either a defendant or, in a proper case, an involuntary plaintiff.”); Fed. R. Civ. P. 19 Advisory Committee Note to Subdivision (a) (1937).
Prima Tek II, L.L.C. v. A-Roo Co., 222 F.3d 1372, 1377 (Fed. Cir. 2000) (“As a general rule, this court continues to adhere to the principle set forth in Independent Wireless that a patentee should be joined, either voluntarily or involuntarily, in any infringement suit brought by an exclusive licensee.”).
See Abbott Labs. v. Diamedix Corp., 47 F.3d 1128, 1133 (Fed. Cir. 1995) (“A patentee that does not voluntarily join an action prosecuted by its exclusive licensee can be joined as a defendant or, in a proper case, made an involuntary plaintiff if it is not subject to service of process.”).
Fed. R. Civ. P. 19(b) (“The factors for the court to consider include: (1) the extent to which a judgment rendered in the person’s absence might prejudice that person or the existing parties; (2) the extent to which any prejudice could be lessened or avoided by: (A) protective provisions in the judgment; (B) shaping the relief; or (C) other measures; (3) whether a judgment rendered in the person’s absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.”).
STC.UNM v. Intel Corp., 754 F.3d 940, 946 (Fed. Cir. 2014) (“[T]his court holds 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).”).
STC.UNM v. Intel Corp., 767 F.3d 1351, 1356, 1358–67 (Fed. Cir. 2014) (en banc) (O’Malley, J., dissenting) (per curiam) (“The Federal Rules state the procedural foundations of the processes of law. The unique exclusion of patent cases from Federal Rule 19 is as peculiar as it is unjustified.”); Advanced Video Techs. LLC v. HTC Corp., 879 F.3d 1314, 1319–26 (Fed. Cir. 2018) (O’Malley, J., concurring) (“Neither Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456 (Fed. Cir. 1998), nor any other case on which it relies specifically holds that a patent co-owner or co-inventor cannot be involuntarily joined under Rule 19(a). Examination of the pertinent case law reveals that repeated references to unsupported dicta have morphed into a hard-and-fast rule from which this court refuses to deviate.”).
Gensetix, Inc. v. Baylor Coll. of Med., 354 F. Supp. 3d 759, 762–63 (S.D. Tex. 2018), aff’d in part, rev’d in part sub nom. Gensetix, Inc. v. Bd. of Regents of Univ. of Tex. Sys., 966 F.3d 1316 (2020).
Id. at 763.
Gensetix, Inc. v. Baylor Coll. of Med., No. 4:17-CV-01025, 2019 WL 9096487, at *3 (S.D. Tex. Feb. 19, 2019) (“[T]his Court finds it somewhat unusual for there to be two major educational research institutions (Baylor and [UT]) that are potentially cross-wise because one of their researchers left one institution to continue his work at the other (a situation which in and of itself may be a motivating factor behind UT’s reluctance to participate as a Plaintiff).”); Graciela Gutierrez, Baylor Supports Flow of Research Discovery, BCM Fam. (Feb. 7, 2019), https://bcmfamily.bcm.edu/2019/02/07/baylor-supports-flow-of-research-discovery/ [https://perma.cc/4BA6-JL2S].
Gensetix, 354 F. Supp. 3d at 771–74.
Id. at 766 (“This Court finds that joinder of UT as an involuntary plaintiff is barred by the Eleventh Amendment.”).
Id. at 763–66 (“UT did not waive its immunity, initiate this suit, or agree to participate in this litigation; accordingly, the Eleventh Amendment prohibits involuntary joinder.”).
Id. at 771 (“While Gensetix has the right to practice, it does not have the unfettered right to exclude others. The right to practice is not substantial enough to allow Gensetix to bring suit in its name alone.” (citation omitted)).
Id. at 770.
See id. at 771 (“Gensetix does not have standing to sue for infringement of the [patents at issue] without joining UT as a party.”).
Id. at 772–74.
Id. at 773.
Id. Indeed, Baylor did challenge the validity of UT’s two patents by petitioning for inter partes review (IPR) at the U.S. Patent and Trademark Office (USPTO). Baylor Coll. of Med. v. Bd. of Regents of Univ. of Tex. Sys., Nos. IPR2018-00948 & IPR2018-00949 (P.T.A.B. 2018).
Gensetix, 354 F. Supp. 3d at 774.
Gensetix, Inc. v. Bd. of Regents of Univ. of Tex. Sys., 966 F.3d 1316, 1319 (Fed. Cir. 2020).
Id. at 1319, 1324.
Id. at 1325.
Id. at 1326–27.
Id. at 1327.
Order Denying Baylor College of Medicine’s Petition for En Banc Rehearing, Gensetix, Inc. v. Bd. of Regents of Univ. of Tex. Sys., No. 2019-1424 (Fed. Cir. Oct. 20, 2020); Perry Cooper, No Full Federal Circuit Eye on Patent Sovereign Immunity Ruling, Bloomberg L. (Oct. 20, 2020, 1:25 PM), https://news.bloombergtax.com/health-law-and-business/no-full-federal-circuit-eye-on-patent-sovereign-immunity-ruling [https://perma.cc/CX84-Y4NU].
See generally Gensetix, 966 F.3d 1316.
Baylor, in its petition for en banc rehearing, signaled that “dismissal of the infringement actions for failure of Gensetix to meet the statutory [standing] requirements of 35 U.S.C. 281 . . . will likely be the first one addressed by the district court on remand . . . .” Baylor College of Medicine’s Petition for Rehearing En Banc at 17–18, Gensetix, Inc. v. Bd. of Regents of Univ. of Tex. Sys., No. 2019-1424 (Fed. Cir. Aug. 24, 2020).
After all, the district court unequivocally held that “Gensetix does not have standing to sue for infringement of the [patents in suit] without joining UT as a party.” Gensetix, Inc. v. Baylor Coll. of Med., 354 F. Supp. 3d 759, 771 (S.D. Tex. 2018), aff’d in part, rev’d in part sub nom. Gensetix, Inc. v. Bd. of Regents of Univ. of Tex. Sys., 966 F.3d 1316 (2020).
Judge Newman, a critic for the Federal Circuit’s prudential standing jurisprudence, questioned the district court’s reliance on the Federal Circuit’s own prudential standing precedent. Gensetix, 966 F.3d at 1330 (Newman, J., concurring in part) (“However, the district court relied on Alfred E. Mann Found. v. Cochlear Corp., to support holding that the University’s default right to sue infringers if Gensetix did not do so, was a right so substantial that it defeated Gensetix’s right to sue as exclusive licensee.” (citation omitted)).
Relying on Gensetix and Rule 19(b), at least one federal district court has allowed the patent infringement suit to go forward without joining the state university patentee. TexasLDPC Inc. v. Broadcom Inc., No. 18-CV-1966, 2021 WL 3422358, at *2–4 (D. Del. Aug. 5, 2021) (holding that the patent infringement case brought by an exclusive licensee may continue without the state university patentee).
Gensetix, 966 F.3d at 1326–27 (relying on Gensetix’s “license in every field” and its control over litigation commencement as facts in favor of allowing the suit to proceed without UT); Carey, supra note 2.
Under current Federal Circuit jurisprudence, most academic research might not be exempted from patent infringement liabilities. See Madey v. Duke Univ., 307 F.3d 1351, 1362 (Fed. Cir. 2002) (limiting experimental use defense at academic institutions to “solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry”).
Gensetix, 354 F. Supp. 3d at 770–71.
See supra Section II.B.
Alfred E. Mann Found. v. Cochlear Corp., 604 F.3d 1354, 1358–59 (Fed. Cir. 2010) (“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.”).
37 C.F.R. § 401.14(k)(1) (“Rights to a subject invention in the United States may not be assigned without the approval of the Federal agency . . . .” (emphasis added)); Kettner, supra note 3, at 3.
See, e.g., Processing of Requests for Assignment of Invention Rights to the Inventor, iEdison, https://public.era.nih.gov/iedison/public/invention/InventorWaiver.jsp [https://perma.cc/TMA8-JPXR] (last visited Jan. 7, 2022) (stating that upon request for approval, the U.S. Government may nevertheless elect to retain rights “if it is the opinion of the awarding agency that this is in the public’s best interest”).
Kettner, supra note 3, at 16–17.
Because of policy and economic concerns, most universities were reported to be “exceedingly cautious and reluctant actors” for patent litigations. Jacob H. Rooksby, Innovation and Litigation: Tensions Between Universities and Patents and How to Fix Them, 15 Yale J.L. & Tech. 312, 353 (2013).
Kettner, supra note 3, at 4.
See, e.g., Starting a Start-up: Successfully Managing the Dynamics of a New Company, U. Colo., https://www.cu.edu/doc/bulletin-startupprocess.pdf [https://perma.cc/HQ54-22JB] (last visited Mar. 10, 2022) (stating that a business plan is one of the three conditions that a startup company needs to satisfy before an exclusive license may be granted by the university); Startup Guidelines, Colo. Sch. Mines, https://research.mines.edu/startup-guidelines/ [https://perma.cc/C3XK-R3VZ] (last visited Mar. 10, 2022) (“Before licensing the technology, OTT requires that the start-up company submit a business plan. This business plan will be used in making a decision as to if the start-up company represents the best chance for the technology to make it to the market place.”).
Leute, supra note 6, at 13–14.
One commentator, in response to the Gensetix decision, voiced the following concern from a licensee’s perspective for not having the necessary enforcing rights: “A company may say it’s not worth giving millions of dollars to a university . . . to get patents that the schools block them from enforcing . . . .” Dani Kass, Fed. Circ.'s UT Immunity Ruling Places Licensing in Spotlight, LAW360 (July 31, 2020, 5:02 PM), https://www.law360.com/articles/1295678/fed-circ-s-ut-immunity-ruling-places-licensing-in-spotlight [https://perma.cc/PU84-ZRM8].
35 U.S.C. § 202(c)(7)(D) (“[E]xcept where it is determined to be infeasible following a reasonable inquiry, a preference in the licensing of subject inventions shall be given to small business firms.”).
Brief of Twelve State Universities and State University Systems as Amici Curiae in Support of Petitioner at 11, Regents of the Univ. of Minn. v. LSI Corp., 140 S. Ct. 908 (2020) [hereinafter Brief of Twelve State Universities] (No. 19-337) (“In fiscal year 2017, more than 1,000 startup companies were formed from university technology transfer . . . .”).
See Startup Guide, Stan. U. Off. Tech. & Licensing 20–21, https://otl.stanford.edu/sites/g/files/sbiybj10286/f/otlstartupguide.pdf [https://perma.cc/3T3Y-FM84] (last visited Jan. 9, 2022).
See, e.g., U.S. Gov’t Accountability Off., supra note 26, at 75; R&D at Colleges and Universities, Am. Ass’n for Advancement Sci., https://www.aaas.org/programs/r-d-budget-and-policy/rd-colleges-and-universities [https://perma.cc/G996-LYNJ] (last visited Jan. 7, 2022).
Research Funding and Grants Guide, U. Mich. Libr., https://guides.lib.umich.edu/c.php?g=283405&p=1888658 [https://perma.cc/8VC9-U8HE] (last visited Jan. 7, 2022).
As an example for state-government sponsors, the California Institute for Regenerative Medicine (CIRM) stated in its 2006 version of intellectual property terms that “CIRM policy is for grantees to retain those ownership rights for transfer to the private sector through licensing instead of assignment.” Cal. Inst. for Regenerative Med., Intellectual Property Policy for Non-Profit Organizations 35 (2006), https://www.cirm.ca.gov/sites/default/files/files/agenda/101106_item_10a.pdf [https://perma.cc/ZCD7-JXUA].
Gensetix, Inc. v. Baylor Coll. of Med., 354 F. Supp. 3d 759, 770 (S.D. Tex. 2018), aff’d in part, rev’d in part sub nom. Gensetix, Inc. v. Bd. of Regents of Univ. of Tex Sys., 966 F.3d 1316 (Fed. Cir. 2020).
Cal. Inst. of Tech. et al., In the Public Interest: Nine Points to Consider in Licensing University Technology 2 (2007) [hereinafter Nine Points], https://www.autm.net/AUTMMain/media/Advocacy/Documents/Points_to_Consider.pdf [https://perma.cc/MZ7H-D239] (“Universities should reserve the right to practice licensed inventions and to allow other non-profit and governmental organizations to do so[.]”); Leute, supra note 6, at 7–8; Faculty Guide to Commercialization, supra note 29, at 8, 27.
See Nine Points, supra note 104, at 1–2.
Gensetix, 354 F. Supp. 3d at 770 (“UT may practice and license the patent for non-commercial use; accordingly, while there are some limits on UT’s right to license the patent, it still retains the right to do so. Thus, Gensetix’s right to license the patent is not truly ‘exclusive.’”).
See Jorge L. Contreras, Intellectual Property Transactions and Licensing: Theory and Practice (Cambridge Univ. Press, forthcoming 2022) (manuscript at 389), http://iptransactions.org/wp-content/uploads/2021/10/Contreras-on-Licensing-v-0-6-clean.pdf [https://perma.cc/6HNN-KV9H] (“While the general principle of university retained rights is not objectionable to most exclusive licensees, the scope of the contractual exclusion can sometimes cause concern . . . . [P]otential exclusive licensees are well-advised to seek limitations, particularly if they are concerned about competitors gaining access to university-generated technology that they have paid to develop and/or license.”).
Gensetix offers realistic insights on how much defending a patent infringement case could burden an academic institution. For example, Baylor spent close to $890,000 in defending against Gensetix’s suit in the federal district court and a little more than $150,000 in defending against Gensetix’s nonpatent claims under state law. Defendant Baylor College of Medicine’s Motion to Declare this Case Exceptional Pursuant to 35 U.S.C. § 285 and Request for Attorney’s Fees and Costs at 1, Gensetix v. Baylor Coll. of Med., No. 4:17-cv-01025 (S.D. Tex. Dec. 21, 2018); Defendant Baylor College of Medicine’s Reply in Support of Its TCPA Fee Application at 10, Gensetix, Inc. v. Baylor Coll. of Med., No. 2019-02003 (129th Dist. Ct., Harris County, Tex. 2019).
See supra Section II.A.3.
State universities are major and active participants in the academic innovation ecosystem. Brief of Twelve State Universities, supra note 98, at 10. As an example, researchers from the University of Texas at Austin, a state university, and Baylor College of Medicine collaborated on a “MasSpec Pen” technology for quick cancer diagnostics. Christine Hall, Solutions: A Pen that Detects Cancer in Real Time, TMC (Mar. 9, 2018), https://www.tmc.edu/news/2018/03/solutions-pen-detects-cancer-real-time/ [https://perma.cc/TG2E-5CVW].
See Gensetix, Inc. v. Bd. of Regents of Univ. of Tex Sys., 966 F.3d 1316, 1323–24 (Fed. Cir. 2020) (“[I]n the absence of a state voluntarily availing itself of federal court jurisdiction, or an express waiver of sovereign immunity, Rule 19(a) must yield to the state’s assertion of sovereign immunity.”).
Republic of Philippines v. Pimentel, 553 U.S. 851, 867 (2008) (observing that foreign sovereign immunity prevents Rule 19(a) joinder); Gensetix, 966 F.3d at 1331 (Taranto, J., concurring in part and dissenting in part) (“[W]hen a sovereign entity is a required party under Rule 19(a), is protected against joinder by sovereign immunity, and makes a non-frivolous assertion that it will be prejudiced by a suit proceeding in its absence, a district court is generally obligated to dismiss the suit under Rule 19(b).” (citing Pimentel, 553 U.S. at 851)).
Janini v. Kuwait Univ., 43 F.3d 1534, 1535–37 (D.C. Cir. 1995) (vacating the district court’s decision that the foreign university was shielded by sovereign immunity because the employment contract termination is “commercial activity,” an immunity exception as contemplated by FSIA). FSIA is beyond the scope of this Comment, but it suffices to say that if a foreign co-owner academic institution refuses to join a licensee’s patent infringement suit, sovereign immunity may be a complicated issue. See generally George K. Foster, When Commercial Meets Sovereign: A New Paradigm for Applying the Foreign Sovereign Immunities Act in Crossover Cases, 52 Hous. L. Rev. 361 (2014).
Prima Tek II, L.L.C. v. A-Roo Co., 222 F.3d 1372, 1377 (Fed. Cir. 2000).
STC.UNM v. Intel Corp., 754 F.3d 940, 946 (Fed. Cir. 2014).
As a representative example, in a proposed model IIA developed by several academic institutions, the template language on patent infringement reads:
If any Party learns of a claim by a third party challenging the validity of any Patent Rights (such as an inter partes review, interference or opposition proceeding) or a potential infringement of the Patent Rights, it will promptly notify the other Parties hereto. Subject to the rights granted to the Licensee in any License Agreement, the Parties agree to discuss the situation and determine in good faith how best to proceed. In the event of a challenge to the validity of any Patent Rights by a third party, the Lead Institution will have the right, but not the obligation, to defend such challenge in the absence of the Parties reaching another agreement on how to respond to such challenge.
Model IIA Project, Model Inter-Institutional Agreement (Annotated) (2015) (emphasis added), http://www.modeliia.org/uploads/5/6/3/4/56342677/model_iia_final_version__annotated__10.21.2015.docx [https://perma.cc/AQP2-D78Q]. As another example, the University of Texas System’s template IIA uses similar open-ended and nonobligatory language on patent infringement:
If any Party learns of a potential infringement of the Patent Rights, they will promptly notify the other Parties. The Parties acknowledge that an exclusive License Agreement will generally provide a first right to the Licensee to pursue patent infringement claims against third parties who infringe the licensed Patent Rights. In the absence of a Licensee pursuing third party infringers of the licensed Patent Rights, the Parties will determine in good faith how to proceed against such potential infringer.
Inter-Institutional Agreement for Joint Invention Management Agreement, Univ. Tex. Sys., (emphasis added), http://www.utsystem.edu/sites/default/files/documents/Technology Transfer Agreements/inter-institutional-joint-invention-management-agreement-all-one.doc [https://perma.cc/F587-S44C] (last visited Jan. 9, 2022).
STC.UNM, 754 F.3d at 946 (noting that the relationship between a patent owner and its exclusive licensee is a scenario that “will overcome this rule against involuntary joinder of a patent owner or coowner in particular instances”).
Nguyen, supra note 9, at 18.
Evident Corp. v. Church & Dwight Co., 399 F.3d 1310, 1314 (Fed. Cir. 2005) (“[T]he policy concerns [are] . . . , from the standpoint of an accused infringer, avoidance of multiple lawsuits and liabilities, and, from the standpoint of the patentee, ensuring that its patent is not invalidated or held unenforceable without its participation . . . .”); Prima Tek II, 222 F.3d at 1377 (“As a general rule, this court continues to adhere to the principle set forth in Independent Wireless that a patentee should be joined, either voluntarily or involuntarily, in any infringement suit brought by an exclusive licensee.”).
Rooksby, supra note 92, at 368.
Ortho Pharm. Corp. v. Genetics Inst., Inc., 52 F.3d 1026, 1034 (Fed. Cir. 1995) (“[A] right to sue clause cannot negate the requirement that, for co-plaintiff standing, a licensee must have beneficial ownership of some of the patentee’s proprietary rights.”).
Leute, supra note 6, at 15–17.
See Contreras, supra note 107, at 297–98 (providing a sample “Agreement to Join” clause to address, in part, a situation where a required party cannot be compelled to join under Rule 19).
See supra text accompanying note 76 (discussing the Federal Circuit’s application of the four Rule 19(b) factors).
Gensetix, Inc. v. Bd. of Regents of Univ. of Tex. Sys., 966 F.3d 1316, 1327 (Fed. Cir. 2020) (“There is also no risk of multiple suits because, under the express terms of the parties’ agreement, UT may not sue Baylor once Gensetix has commenced litigation.”).
Id. at 1324–25 (stating that the Federal Circuit adopts “regional circuit law” to review Rule 19(b) analysis and the applicable standard is abuse of discretion in the Fifth Circuit).