Federal Circuit Finds Reservation of Exclusive Right to Enforce Field of Use In Particular Area Does Not Confer Right to Sue Without Patent Owner

In Int’l Gamco, Inc. v. Multimedia Games, Inc., 504 F3d 1273; 84 USPQ2d 2017 (Fed. Cir. 2007), International Gamco, Inc. (“Gamco”) was the owner of U.S. Patent No. 5,324,035 (the ‘035 patent) which relates to a gaming system network.   Gamco assigned the ‘035 patent to International Game Technology (“IGT”), but reserved sublicensing and enforcement rights in the New York State Lottery Market.   In a first attempt to enforce this provision, Gamco sued Multimedia, who runs the New York State Lottery forNew York, for infringement of the ‘035 patent.  The District Court for the Northern District of California dismissed the suit for lack of subject matter jurisdiction since Gamco’s reservation was not an exclusive license permitting Gamco to sue without the patent owner, IGT.  In response, Gamco and IGT executed a second license in which IGT affirmatively assigned Gamco “the exclusive right and license, within the Territory, to make, use, sell, and offer to sell, with the right to sublicense others to make, use, sell, and offer to sell game system networks covered by the ’035 Patent,” where the term Territory was limited to “the lawful operation of lottery games authorized by the New York State Lottery in the state of New York.” Gamco then sued Multimedia in District Court for infringement of the 035 patent.  When Multimedia again moved to dismiss for lack of subject matter jurisdiction, the District Court denied the motion since the exclusive license conferred all substantive rights in a blended enterprise license which conferred exclusivity for a particular field of use within a particular geographic area.  However, the District Court recognized that this was a case of first impression, and therefore granted certiorari to the Federal Circuit on the following issue:

whether an exclusive patent license, with exclusive right of enforcement, restricted to the activities of a specific enterprise within a specific geographical territory, is sufficient to confer standing on the exclusive licensee to bring a patent infringement action in its own name only” under 28 U.S.C. § 1292(b). 

On appeal, the Federal Circuit reversed the District Court.  Specifically, the Federal Circuit relied upon Waterman v. Mackenzie, 138 U.S. 252, 255 (1891) as supporting the position that exclusive licenses can be granted for territories with a right of enforcement not requiring the patent owner to join the suit.  Conversely, the Federal Circuit also relied upon Pope Manufacturing Co. v. Jeffery Manufacturing Co., 144 U.S. 248 (1892) for the proposition that exclusive licensees limited to a particular field of use or claim cannot bring suit without the patent owner since there is an increased risk of a multiplicity of suits within a common territory for a single defendant.  As such, the Federal Circuit held that exclusive enterprise licenses, even within a geographic limitation, require the patent owner to join in the suit in order to reduce the risk of the multiplicity of suits due to several parties having potentially different causes of action in a same geographic area for a same set of facts.  Since the ‘035 patent could be infringed where a single infringing game system at an NYSL-authorized site also offers other games not within the Gamco’s exclusive field of use, “the single infringing act of offering NYSL games might subject the infringer to suit by Gamco for the lottery games, and separately by IGT or some other game-specific licensee for the other games.”  As such, the Federal Circuit held that Gamco’s exclusive enterprise license was insufficient to confer sufficient substantive rights to bring suit without the patent owner, IGT.

Significance for Patent Owners

Int’l Gamco highlights the difficulty in drafting exclusive licenses when the licensee requires a right to sue without the patent owner.  This difficulty is exacerbated when the license itself is for only portions of the patent right, leaving the patent owner with remaining rights which can be separately licensed and can result in accused infringers facing a multitude of suits from a common patent.  Where the patent owner does require such a right, Int’l Gamco highlights the need to grant an exclusive license within a geographic area without any particular limitation on who can be sued and on what grounds.

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