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Rowe International Corp. v. Ecast

May 14, 2007

ROWE INTERNATIONAL CORP. AND ARACHNID, INC. PLAINTIFFS,
v.
ECAST, INC., ROCK-OLA MANUFACTURING CORP., AND VIEW INTERACTIVE ENTERTAINMENT CORP., DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Rowe International Corp. and Arachnid, Inc. have filed this patent infringement action against Ecast, Inc., Rock-Ola Manufacturing Corp., and View Interactive Corp., claiming infringement of six patents for computer jukebox and computer jukebox systems. Defendants contend that plaintiffs lack standing to enforce U.S. Patent Nos. 6,598,230, 5,848,398, and 6,970,834, and they have moved to dismiss plaintiffs' claims related to those patents. For the following reasons, the Court denies defendants' motions.

Background

Each of the patents at issue in this case concerns a computer jukebox or computer jukebox system. Unlike a conventional jukebox, which requires routemen to visit each jukebox location to change records or compact disks and record usage data, a computer jukebox system distributes digital music and retrieves jukebox usage data over a computer network. On March 6, 1992, inventors John Martin, Michael Tillery, and Samuel Zammuto filed Patent Application No. 07/846,707 (the '707 application), which disclosed their invention of a system for managing a network of computer jukeboxes. The previous day, the inventors executed an assignment of the '707 application to Arachnid, the company they owned and for which they worked. The assignment stated that the undersigned [inventors] hereby assign to Arachnid, Inc. the entire right, title and interest in the invention disclosed in [the '707 patent] application and any and all other applications which Arachnid may file on said invention or improvements and any and all Letters Patent which may be obtained.

Mot. to Dismiss, Ex. A at 4. The '707 application eventually issued as United States Patent No. 5,355,302. The '302 patent identified the inventors as Martin, Tillery, and Zammuto, and the assignee as Arachnid.

In subsequent years, the inventors filed several patent applications derived from the '707 application, including applications that resulted in the issuance of the '398 and '834 patents. The '398 and '834 patents both identify Arachnid as assignee. The applications that became the '398 and '834 patents are both continuations-in-part of the '707 application. Those applications disclose new subject matter, such as downloading, storing, and playing advertisements, that was not part of the '707 application. Defendants contend that because the inventors never executed an additional assignment of their rights in the '398 and '834 patents, the inventors are the owners of those patents, not Arachnid. Therefore, defendants contend, Arachnid and its licensee Rowe do not have standing to assert infringement of the patents.

The '230 patent, issued on July 22, 2003, identifies Karsten Ballhorn as the inventor. In 1999, Ballhorn conveyed his interest in the application that issued as the '230 patent to NSM Music Group Ltd. In July 2005, NSM entered into an agreement with Rowe to license the '230 patent. The license agreement had an initial five-year term and renewed automatically every year thereafter. The agreement granted Rowe "an exclusive right and license" to the '230 patent in the United States for digital jukeboxes and a non-exclusive right to use the technology in Europe. Mot. to Dismiss, Ex. A § 2.1. NSM warranted that "it has not reserved any rights in the ['230 patent], and has not encumbered, licensed, or otherwise obligated itself to license the ['230 patent] to any Third Party . . . ." Id. § 2.2. Rowe also received "the exclusive right to enforce the ['230 patent] against any Third Party for past, present, and future infringements . . . ." Id. § 6.8. Rowe agreed not to sue NSM with respect to its use of the '230 patent to manufacture or have manufactured by a non-competitor products that incorporate all or part of the '230 patent's technology (NSM products) during the initial five-year term; sell the NSM products prior to or during the term; or operate a service and manage the NSM products itself or through Ecast. Id. § 2.9.1. NSM cannot transfer these rights without Rowe's consent. Ecast contends that the license agreement does not convey sufficient rights to Rowe to allow it to enforce the '230 patent.

Discussion

Standing is a "threshold question in every federal case, determining the power of the court to entertain suit." Warth v. Seldin, 422 U.S. 490, 398 (1975). "A party may bring an action for patent infringement only if it is the 'patentee," i.e., if it owns the patent, either by issuance or by assignment." Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1249 (Fed. Cir. 2000). See also 35 U.S.C. §§ 100(d), 261, 281. Plaintiffs have the burden of demonstrating their standing to bring suit. Sicom Sys. Ltd. v. Agilent Techs., Inc., 427 F.3d 971, 980 (Fed. Cir. 2005). On a motion to dismiss for lack of standing, the Court is free to weigh the evidence to determine whether jurisdiction has been established. United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003).

1. '230 Patent

Defendants contend that Rowe and Arachnid lack standing to assert infringement of the '230 patent because NSM retained substantial rights to practice the patent. A licensee such as Rowe may bring suit in its own name only if "all substantial rights under the patent have been transferred . . . rendering the licensee the virtual assignee." Enzo APA & Son, Inc. v. Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998). To determine whether all substantial rights in a patent have been conveyed, the Court considers both the rights granted and the rights retained. See Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.p.A., 944 F.2d 870, 875 (Fed. Cir. 1991).

Rowe received all the substantial rights under the '230 patent. For example, NSM granted Rowe the "exclusive right and license" to the '230 patent and warranted that it "has not reserved any rights in the ['230 patent.]" Mot. to Dismiss, Ex. A § 2.1, 2.2. Rowe is able to sub-license the '230 patent, without approval from NSM, in exchange for a royalty. Id. § 2.6. And, significantly, NSM granted Rowe the "exclusive right to enforce the ['230 patent] against any Third Party for past, present, and future infringements at its own costs . . . ." Id. § 6.8. See Vaupel, 944 F.2d at 875-76 (grant of right to enforce "is particularly dispositive here because the ultimate question confronting us is whether [licensee] can bring suit on its own or whether [patentee] must be joined as a party."). See also Speedplay, 211 F.3d at 1251 (exclusive licensee with right of first refusal to sue for infringement had substantial rights); Advanced Cardiovascular Sys., Inc. v. SciMed Life Sys. Inc., 1996 WL 606958, 40 U.S.P.Q.2d 1286, 1290 (N.D. Cal. May 13, 1996) (finding significant that licensee granted exclusive right to initiate "whatever action it deems appropriate to attempt to eliminate [any infringement of the subject patents]."). Courts find the right to sue for infringement particularly important because "[t]he policy underlying when an exclusive licensee brings suit is to prevent the possibility of two suits on the same patent against a single infringer . . . . This policy is not undercut here because the right to sue rested solely with [the licensee]." Vaupel, 944 F.2d at 875-76.

Despite NSM's assignment of the various rights described above, including the right to sue for infringement, defendants argue that NSM retained significant rights sufficient to preclude Rowe from having standing to enforce the patent. For example, Rowe's license is limited to the field of digital jukeboxes; it must pay a sublicense royalty to NSM; Rowe may not take infringement action against Ecast before January 1, 2006; and NSM retains development rights to improvements that "directly evolve" from the '230 patent. Mot. to Dismiss, Ex. A §§ 2.3, 2.4, 2.6, 2.9.

These rights, however, are not so significant that they preclude Rowe from enforcing the patent. As the court noted in Advanced Cardiovascular, "[w]hen [the patentee] transferred exclusive rights to the entirety of the patents to [the licensee], [the licensee] obtained the power to license any portion of its newly acquired patent rights. At the same time, [the patentee] lost [its] title to the patents and [its] right to sue for patent infringement." Advanced Cardiovascular, 1996 WL 606958, 40 U.S.P.Q.2d at 1290-91. The arrangement between Rowe and NSM is similar to that between the parties in Advanced Cardiovascular. Essentially, after receiving an exclusive license, Rowe granted certain rights back to NSM via the covenant not to sue. The covenant not to sue, therefore, further illustrates that Rowe received substantial patent rights; it could not grant back rights it did not have. See id. at 1290 ("the 1988 License ...


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