Will Sprint Communications lead to a rethink of patent law’s standing doctrine?

By TJ Chiang

Last week, the Supreme Court decided Sprint Communications Co. v. APCC Services, a case that received more attention for Chief Justice Roberts' citation to Bob Dylan than the mundane federal jurisdiction issues involved. The case involved the collection of small debts by payphone operators from long-distance phone companies. Because the amounts involved were small, payphone operators assigned their claims to "aggregators," who effectively brought the suit on their behalf. The issue was whether these aggregators, who had nothing but an assignment of the right to sue the phone companies, had standing in federal court.

The Court held that "an assignee of a legal claim for money owed has standing to pursue that claim in federal court." As an example of this longstanding ability to assign legal claims to strangers who had not suffered any personal injury, the Court cited the early patent statute, which permitted (then and now) inventors to assign their patents to others.

The irony of the shout-out to patent law is that both the Supreme Court and the Federal Circuit have consistently held that the assignee of a legal claim for money owed on a patent does not have standing to pursue that claim in federal court. A bare assignment of the legal claim for past infringement damages—precisely the type of assignment in Sprint Communications, since the plaintiffs were not assigning their payphones to the aggregators—does not confer standing to sue. See, e.g., Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24 (1923); Mars, Inc. v. Coin Acceptors, Inc., No. 07-1409 (Fed. Cir. June 2, 2008). Instead, the assignment must include the patent itself or an exclusive license.

There are certainly sound policy reasons for requiring the patentee to be a party to an infringement suit, not least because a judgment of invalidity might not be binding absent such participation. At the same time, the patentee standing requirement is a source of frequent litigation at the Federal Circuit. Moreover, because standing is jurisdictional, the issue of proper parties can require an entire case to be relitigated due to a procedural defect. Perhaps the time is ripe for some rethinking in this area, as Sprint Communications and Crown Die appear to be in some tension with each other.

[NOTE: This summer TJ Chiang is transitioning from his position as an associate at Quinn Emmanuel to become a professor at George Mason Law School. Along with yours truly and Jon Dudas, TJ Chiang is a graduate of the University of Chicago Law School. SSRN]

Comments

[Paul F. Morgan]

Thanks, this is the kind of non-patent-law case of potential patent law relevance that many of us might otherwise miss, because its hard enough just to keep up with the ongoing twists and turns in patent law per se.

P.S. Was there any useful discussion of cases on common law barratry or champerty in the decision or in amicus briefs? That might be interesting as to situations in which the patent owner retains a financial benefit, or provides financial encouragement to someone else to sue on their patents. I'm also thinking, for example, of the current trend to sell patents to trolls so that they can sue competitors, and/or allegedly providing significant financial incentives to other companies to widely sue third parties using "free" software?

[lee rahn]

Why wouldn't a class action by the payphone operators work? There appears to be common issues of fact and law and parties too numerous to make individual actions pracical. This would avoid the assignment of rights issue.

[Anon]

TJ, interesting commentary. However, the tension you appear to identify is a false one. Consider this passage from Crown Die: "the plaintiff in an action at law must be the person or persons in whom the legal title to the patent resided at the time of the infringement."

Conversely, the issue in Sprint, as I understand, was a collection of payments due under a contract, which is governed by a completely different body of law. Therefore, if a patentee assigned to a third party the right to collect damages from a former patent licensor that refused to make required royalty payments, that third party might very well be able to proceed on a pure contract theory in state court. Can anyone cite a case where this has happened? (Or cite a case to show I am wrong?)

[LDC]

Interesting commentary, but I think this may overlook the fact that standing doctrine in patent law is statutory. Anon 1:18's caselaw quote is probably a reflection of that. Only the "patentee" has statutory standing (I think it's 35 U.S.C. 281). The Federal Circuit has interpreted the term "patentee" in the statute to mean that a licensee with "all substantial rights" is, effectively, the "patentee", and therefore has standing to bring suit on its own as well -- within the meaning of the statute.

Putting aside the wisdom of the Federal Circuit's logic, I doubt that the this statutory interpretation could extend even further to encompass only an assignee of a claim for money owed on a patent.

Personally, I think the statute means what it says -- the legal owner of title to the patent brings suit. As you note, that ensures that a judgment (e.g., of invalidity) binds the patent owner. The "all substantial rights" doctrine created by the Federal Circuit was an erroneous stretch of Title 35, which is why it creates such a big mess to figure out when a licensee has "all substantial rights." "Patentee" should be interpreted to mean "patentee", not "patentee plus maybe some licensees some times." Reasonable minds could differ, but either way, I guess the main point is that it's ultimately a matter of statutory interpretation of Title 35.

[TJ]

LDC, good point, but the Federal Circuit has created both an Article III standing requirement and a statutory standing requriement. The Article III standing requirement requires at least an exclusive license (with or without substantial rights); the statutory standing requirement requires all substantial rights in the patent. Thus, a licensee holding just a right to sue for past damages (without any exclusionary rights) would not even have Article III standing, and this does not implicate the statutory requirement of a "patentee."

[David Boundy]

More interesting still, this kind of assignment would be the most troll-like of possible behavior. It's queer that the Supremes think it's OK to assign a cause of action for pay phones but not for patent infringement. (I haven't read the case - is Sprint Communications really that out-of-synch with Kennedy's concurrence in eBay?)

[Michael F. Martin]

You have to wonder whether some Supreme Court clerk who supplied the cite to the patent law is reading this and thinking, "Whoops."

[Anonymous]

Blonder-Tongue v. Univ. of Illinois is clear that a judgment of invalidity is a judgment in rem. (Unenforceability is also.) Third parties can assert collateral estoppel in future suits on the basis of those judgments. Logically, the patentee would be affected in the same way. Thus, in your hypothetical, where the patentee/exclusive licensee assigns the right to sue and the patent is found invalid, any invalidity or unenforceability judgment would bind them.

The Federal Circuit's rule (which is the right one) just comes back to the fact that a patent is a thing and an action on a thing requires all substantial interests to be represented. This is so for lots of good reasons, including the policies that (1) all necessary parties should be able to protect their interests and (2) the accused infringer should not be afraid of a multiplicity of suits for the same conduct. A claim for debt collection, on the other hand, is a very different animal. The assignee of that claim has no further interest in the claim, so it has nothing to protect. Also, there is only one claim for the debt, so there will be only one potential suit.

I don't see any inconsistency.

[Anonymous]

Meant to say "assignor of that claim . . . ." Sorry.

[GP]

"Will Sprint Communications lead to a rethink of patent law’s standing doctrine?"

The consensus answer, based on the crickets I hear, is . . .

"who cares?"

[Michael F. Martin]

Could have been worse:

http://blogs.wsj.com/law/2008/07/02/nyts-greenhouse-high-court-erred-in-child-rape-case/

[TJ]

Anonymous,

I think you are reading Blonder-Tongue too broadly, if you mean that the estoppel applies even to a patentee who was not party to the prior litigation that found the patent invalid. Here is a quote from the case:

"Some litigants -- those who never appeared in a prior action -- may not be collaterally estopped without litigating the issue. They have never had a chance to present their evidence and arguments on the claim. Due process prohibits estopping them despite one or more existing adjudications of the identical issue which stand squarely against their position."

I don't disagree that the Federal Circuit's doctrine has many sound policy justifications. But those reasons you list go to statutory standing, which is curable by adding the patentee later, before judgment. The problem is that the Federal Circuit holds a bare interest in collecting money for past damages insufficient to support standing under Article III, and the defect is not curable. That is very hard to reconcile with Sprint Communications.

[Anonymous]

TJ,

Blonder-Tongue is a little schizophrenic in that sense, agreed. Still, I'd argue the bare assignee of the right to sue for past damages probably counts as the patentee's "privy" for collateral estoppel purposes under Blonder-Tongue and collateral estoppel law generally, having been assigned the chance for reward (and risk). In that sense, the patentee cannot be said to have "never appeared" as it was presumably well-represented by the bare assignee. And, given Blonder-Tongue's emphasis on the "one patent, one suit" policy, I'd say most of Blonder-Tongue supports collateral estoppel against the patentee under your hypothetical. (Not saying I'd want to go to battle with that argument, but I'd be very hesitant as a patentee under those circumstances.)

Now, on the Article III standing point: a patent is a creature of statute, and only patentees may bring an action for infringement under the statute. Bare assignees don't count as patentees under either the statute or case law, and for good reasons that we agree upon. There is some tension with Sprint Communications on a high level as it would appear that there is some harm to the bare assignee's economic interests, but Congress and the courts drew the line for standing where it is. Even if Sprint Communications hints at standing for a bare assignee, the statute and almost a hundred years of case law say otherwise.

[John Garger]

Can someone give me an idea whether or not I should go for a smart phone or just use a more stylish phone and wait for some better technology? I am on the Sprint network, and was referred to http://www.sanyowireless.com , but I'm not seeing any options that look like smart phones. I don't need an MP3 player or a camera, I'd rather have a phone that is lighter and easier to carry. Any recommendations would be welcome.