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The licensee’s right to grant sublicenses to defendants sued by the licensor did not render the licensor’s right to sue illusory because any sublicense had to include pass-through royalties. The licensor’s right to sue was substantial enough to find that it remained the owner of the patents-in-suit, as once its right to sue was activated, it maintained absolute control over any suit it brought in its own name.
Plaintiff licensor, Alfred E. Mann Foundation for Scientific Research (AMF), is a research organization interested in developing new medical technologies, including cochlear implants. Defendants, Cochlear Corporation and Cochlear Ltd. (collectively, Cochlear), are companies that build cochlear implants for use in human patients. At issue is an agreement between the plaintiff and Advanced Bionics, the licensee, that builds cochlear implants. Plaintiff granted an exclusive license of the patents to the licensee and it was that the plaintiff accused of the defendants of infringing. Plaintiff then sued the defendants for patent infringement. Defendants contends, and which the district court also held, that this agreement was a virtual assignment of the patents-in-suit to the licensee, giving the licensee the sole right to sue for infringement of those patents. The district court then dismissed the case for lack of standing to sue. Plaintiff licensor sought a review of a decision. On appeal, the court found that the plaintiff was the owner of the patents-in-suit.
Did the district court err in dismissing the case for lack of standing to sue?
The court reversed the district court's decision and remanded for further proceedings. The court found that plaintiff was the owner of the patents-in-suit because it retained substantial rights in the patents, including the right to sue for infringement if the licensee declined to do so. The court also held that although the license agreement failed to specify a time within which the licensee had to make its decision whether to sue, under Cal. Civ. Code § 1657, a reasonable amount of time was allowed. The court affirmed that the agreement between plaintiff and the licensee was an exclusive license agreement, but it was not a virtual assignment of the patents-in-suit. On remand, the district court was directed to consider whether the licensee was an indispensable party.