Will the Real Dow Please Stand Up?

Real Dow Stand Up

Celebrity Patents

This case deals with a question involving VIPs (very important patents): Do these VIPs need to be on the list to get Dow Chemical in the courtroom door? Judges Linn and Prost say no, but Judge Reyna says yes. While there are a couple of other issues in this case, the issue of standing—whether Dow Chemical actually owned the patents and could sue on them—is the most interesting one, and it is the point on which the judges disagreed.

Dow Chemical Co. v. Nova Chemicals Corp., No. 2010-1526 (Fed. Cir. Jan. 24, 2012) (Judges Linn, Prost, and Reyna) (nonprecedential)

As you may remember from recent cases, in order to have standing to sue for patent infringement, you have to own the patent. And you might also know that patent and trademarks are assets that large corporations sometimes use for tax and other business benefits. Dow Chemical came up with a creative ownership approach to its patent assets: in 2002, it transferred patent rights to a holding company, Dow Global Technologies, Inc. (DGTI) to get certain tax advantages. DGTI licensed the patents back to Dow Chemical, who then paid DGTI a royalty to use the licensed technology. It saved Dow Chemical some tax dollars, but it’s a complicated system. So complicated, in fact, that it was a little fuzzy which patents DGTI owned, and which ones Dow Chemical owned.

In October 2005, Dow Chemical sued Nova for infringement of 2 patents covering a type of plastic. The case proceeded through the discovery process. In 2009, Dow Chemical produced a copy of the contract through which Dow Chemical transferred patent rights to DGTI. Dow Chemical also produced a document called “Schedule A” that is supposed to be a complete list of all the patents that Dow Chemical transferred to DGTI. The 2 patents involved in this case weren’t on Schedule A. So, they weren’t transferred to DGTI, and Dow Chemical still owned them and can sue on them. Simple, right?

Well, for Judges Linn and Prost, it was that simple. In their reading, the words in the contract are clear—Schedule A is the definitive list of transferred patents, so there’s no reason to look any further. They concluded that Dow Chemical owned the patents and therefore had standing to sue.

Judge Reyna wasn’t so sure. In his reading, Dow Chemical intended to transfer all patent rights to DGTI except for the few that were clearly specified on a separate attachment (Schedule D). The contract defines “Patent Rights” as “any and all patents and applications for patents of any kind [that Dow can transfer] . . . without resulting in a loss of rights.” (See page 6 of the Dow Chemical opinion.) Judges Linn and Prost didn’t tackle that last phrase, but to Judge Reyna, that phrase was really important and worth a closer look. Judge Reyna thought the language of the patent was unclear enough to justify looking at other evidence. Based on the outside evidence, he concluded that Dow Chemical didn’t own the patent rights, so the case should be dismissed without prejudice.

Out of Order

Dow Chemical’s behavior concerning the contract is another wrinkle in the analysis, and a confusing one. Dow Chemical didn’t produce the contract transferring patent rights until June 19, 2009—5 months after discovery closed and nearly 4 years after the litigation began. At the same time, Dow Chemical also produced Schedule D—the list of patents excluded from the transfer—and a document dated June 15, 2009 that gave Dow Chemical the title to the patents involved in this case, just in case there were doubts about ownership. Right before Schedule D was produced (again, nearly 4 years after the litigation started), it was updated to include these patents.

This was the first time Nova heard about the transfer, so it was the first time Nova could question who owned the patents. Standing to sue is something that has to be resolved before the case goes anywhere. In fact, as Judge Reyna pointed out, the Supreme Court has held that standing to sue is “an essential and unchanging part of the case or controversy requirement,” and that the party who brings the lawsuit has to prove it has standing (in a patent infringement case, legal title to the patents) when it files the complaint.

Here, though, the district court judge avoided addressing the standing issue for 9 months, and then decided to proceed with a trial on the infringement and invalidity issues before holding a trial on standing. (These details about the timeline only come out in the dissent, by the way.) So, all of the substantive issues were resolved—including a $61.8 million damages award to Dow Chemical—before the district court even decided whether Dow Chemical should be allowed in the courtroom door. That seems a little backwards.

Plus, the June 2009 title transfer document and the changes to Schedule D that Dow Chemical made don’t have any effect, since they happened long after Dow Chemical filed the complaint. Dow Chemical also didn’t explain why it took so long to produce these documents. It seems like Dow Chemical got to avoid a major constitutional requirement because of its own failure to conduct a thorough pre-filing investigation and follow discovery rules.

Judge Reyna’s point is that even if Dow Chemical could win on the merits of the case after it worked out the ownership issues, it shouldn’t be able avoid the threshold jurisdiction requirement. He concludes:

I believe that law schools still teach first year law students that whether standing exists should always be one of the first questions considered when a lawsuit is likely to be filed. When a genuine question of standing is presented, its resolution should not be delayed by the parties or by the court, as every day spent in a litigation brought without standing is wasteful. Counsel, as fiduciaries to their clients and officers of the court, are obligated to diligently work to prevent such unnecessary burdens on the justice system.

These patents might be VIPs, but to Judge Reyna, Dow Chemical can’t skip “standing” in line to get to the courthouse.

Take a look at the Dow Chemicals opinion, if you like.

 

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