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SPH America, LLC v. Huawei Technologies, Co., Ltd.

United States District Court, S.D. California

April 10, 2017

SPH AMERICA, LLC, Plaintiff,



         On December 2, 2016, the Court entered an order requiring Plaintiff SPH America, LLC (“SPH America”) to show cause as to why it has standing to bring this lawsuit. Both sides filed written responses to the order, and the Court held a hearing on January 17, 2017. For the reasons set forth below, the Court finds that SPH America does not have standing.

         I. Background

         This is a patent infringement lawsuit in which SPH America alleges that Defendants Huawei Technologies, Co., Ltd., Futurewei Technologies, Inc., and Huawei Device USA, Inc., (collectively Defendants or “Huawei”) infringe nine United States Patents, Nos.: RE 40, 385; RE 40, 253; 5, 960, 029; 8, 121, 173; RE 44, 507; RE 44, 530; 8, 565, 346; 8, 532, 231; and 7, 443, 906.[1] These patents are all owned by the Electronics and Telecommunications Research Institute (“ETRI”), a South Korean research organization. In 2006, ETRI entered into an agreement to license certain patents and their family members to SPH, a Korean-based entity. [Doc. No. 266-2.] On or about February 27, 2007, the license rights were transferred from the Korean-based SPH to plaintiff SPH America. [Doc. No. 266-6 at 3.[2] The patents at issue in this litigation are subject to the terms of that agreement and its amendments. [Doc. Nos. 266-2; 266-4; 266-6; and 266-8.]

         The question of subject matter jurisdiction came to the attention of the Court as a result of a discovery dispute between the parties. The patents at issue were also asserted by SPH America in a related lawsuit against Samsung, Case No. 14-CV-1474-CAB-KSC. Huawei requested documentation between SPH America and Samsung regarding the terms of a license agreement (the “Samsung License”) reached in settlement of that litigation. [Doc. No. 244-3.] SPH America responded that ETRI, the owner of the patents, conducted the licensing discussions and that SPH America had no direct email communications with Samsung prior to signing Samsung License. [Id.] SPH America did not provide any documents evidencing that it directed ETRI's negotiations, and the documents provided indicated that ETRI simply sent the final agreement to SPH America for signature when the deal was completed. These circumstances raised concerns about SPH America's true role as a licensee and the intentions of ETRI and SPH America regarding their contractual arrangement.

         These concerns were further heightened by a public statement prepared by ETRI's legal department [see Doc. No. 276-3, at 3-4], and issued in 2010 [Doc. No. 262-11], explaining the relationship between ETRI and SPH America. ETRI described SPH America as its litigation agent, acting on ETRI's behalf according to ETRI's will, to enforce ETRI's patents in the United States for a portion of any recovery. In other words, ETRI admitted the arrangement is “effectively [the] grant [of] a ‘hunting license, ' solely for the purpose of litigation, in the form of a pro forma exclusive license.” Prima Tek II, LLC v. A-Roo Co., 222 F.3d 1372, 1381 (Fed. Cir. 2000). Such an arrangement would not provide SPH America with standing to sue. Consequently the Court issued an order to show cause (“OSC”) to SPH America to demonstrate it has standing.

         II. The Terms of the License Arrangement

         In summary, the ETRI-SPH America agreement and its amendments purport to grant an exclusive license to SPH America to use the licensed patents, including to sublicense them to third parties and bring infringement actions. SPH America, however, is obligated use its best efforts to make licensing and litigation decisions that protect the interests of ETRI. SPH bears all the expense of any litigation and is required to pay ETRI between 50% to 70% of any third-party royalties and any litigation proceeds SPH America collects. SPH America has guaranteed minimum payments to ETRI that increase from approximately $268 million per year in 2007, to $896 million per year from 2016 and thereafter.

         ETRI retains title to the patents. SPH America cannot transfer any of its rights or obligations under the agreement to a third party without consent of ETRI, and SPH America remains liable to ETRI for the activities of a third party transferee unless those activities are approved by ETRI, but such consent and approval cannot be unreasonably withheld by ETRI. All the license rights revert to ETRI if SPH America breaches the agreement or becomes unable to perform due to bankruptcy, insolvency or any other similar event. Certain of the licensed patents (the WiFi patents) are deemed to be returned to ETRI if SPH America fails to make guaranteed royalty payments.

         In light of the rights conveyed to SPH America, the rights retained by ETRI under the agreements, and the conduct of the parties evidencing their intentions surrounding the conveyance, the Court must determine whether SPH America had substantial rights to each of the patents at issue at the time the complaint was filed to have standing to sue in its own name.

         III. Legal Standards

         “Before a court may exercise jurisdiction over a patent infringement action, it must be satisfied that, ‘in addition to Article III standing, the plaintiff also possesse[s] standing as defined by § 281 of the Patent Act.'” Drone Techs., Inc. v. Parrot S.A., 838 F.3d 1283, 1292 (Fed. Cir. 2016) (quoting Alps S., LLC v. Ohio Willow Wood Co., 787 F.3d 1379, 1382 (Fed. Cir. 2015)).

         Article III standing must be present at the time the suit is brought. Sicom Sys., Ltd. v. Agilent Techs., Inc., 427 F.3d 971 975-76 (Fed. Cir. 2005). If a plaintiff lacks standing at that time, the Court lacks subject matter jurisdiction and the case must be dismissed pursuant to Rule 12(b)(1). The party “bringing the action bears the burden of establishing that it has standing.” Id. at 976.

         The party bringing suit has to have a legally protected interest in the patent created by the Patent Act, so that it would suffer legal injury from an act of infringement, to satisfy Article III standing. Propat Int'l Corp. v. RPost, Inc., 473 F.3d 1187, 1193 (Fed. Cir. 2007). “A party … that has the right to exclude others from making, using, and selling an inventions described in the claims of a patent is constitutionally injured by another entity that makes, uses, or sells the invention.” Intellectual Prop. v. TCI Cablevision, 248 F.3d 1333, 1346 (Fed. Cir. 2001). Thus, if a party has the exclusive right to decide to license or not to license (i.e., exclude) others from practicing the invention, its interest in the patent can satisfy the requirement for Article III standing. See Prima Tek II, 222 F.3d at 1379 (implicit in the right to exclude is the ability to waive that right, i.e., to license activities that would otherwise be excluded.)

         However, even a licensee with a legally protected interest in the patent for constitutional standing to sue still may not have sufficient interest in the patent to sue alone in its own name and may need to join the patent owner. See Propat, 473 F.3d at 1193. The Court must assess whether a transfer of rights under a patent conveyed “all substantial rights in the patent to the transferee” and therefore effects a transfer of ownership for standing purposes. Id. at 1189. To do so, the Court must “examine whether the agreement transferred all substantial rights to the patent” and “whether the surrounding circumstances indicated an intent to do ...

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