Corporate Affiliates Dismissed for Lack of Standing to Enforce Patents

 by Dabney Carr

Three related corporations, Hill-Rom Company (HRC), Hill-Rom Services, Inc. (HRS) and Hill-Rom Manufacturing, Inc. (HRM), brought suit against General Electric for patent infringement. HRM is the sole manufacturer of products embodying the patented inventions, and HRC sells and distributes those products, but HRS is the owner of the patents in suit. Even though Hill-Rom claimed that HRM and HRC were exclusive licensees with the right to enforce the patents, the Court held that they lacked standing and dismissed them from the suit. Hill-Rom Co., Inc. v. General Electric Co., Case No. 2:14CV187, 2014 U.S. Dist. LEXIS 108428 (E.D.Va. Aug. 6, 2014), found here [an enhanced version of this opinion is available to lexis.com subscribers].

Despite explicit language in the agreements between HRS, HRM and HRC that granted HRM and HRC only non-exclusive licenses to the patents, the plaintiffs submitted a declaration that the licenses “are in fact exclusive.” Judge Doumar rejected this claim, holding that HRM and HRC lacked a proprietary interest in the patent. Likewise, even though the license agreements allowed HRM and HRC to enforce the patents, “a contract about litigation rights that does not also convey property rights in the patent cannot confer standing to sue in a patent case.”

While the decision dismisses two plaintiffs, there may be little practical impact on the suit. Judge Doumar allowed the suit to proceed, with the only limitation that HRS cannot recover lost profits suffered by HRM or HRC, regardless of the companies’ “sister corporation status” or whether the operate as a “single economic unit.” The ruling, however, is a lesson to companies which use patent-holding companies to hold title to patents and then license their corporate affiliates to practice the patents that those licensees must have exclusive licenses in order to be able to enforce those patents.

 Read more at Virginia IP Law by Troutman Sanders LLP.

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