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REFAC INTERN., LTD. v. MASTERCARD INTERN.

January 7, 1991

REFAC INTERNATIONAL, LTD., PLAINTIFF,
v.
MASTERCARD INTERNATIONAL, F.W., WOOLWORTH'S, GAP INC., HIT OR MISS, INC., WALDEN BOOK COMPANY, INC., CRAZY EDDIE, INC., AND MOBIL OIL CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Kevin Thomas Duffy, District Judge:

MEMORANDUM AND ORDER

Plaintiff Refac International ("Refac") brings this action against eight defendants: Mastercard International ("Mastercard"), F.W. Woolworth's ("Woolworths"), Gap Inc. ("the Gap"), Hit or Miss, Inc. ("Hit or Miss"), B. Altman & Co. ("B. Altman"), Walden Book Company, Inc. ("Walden"), Crazy Eddie, Inc. ("Crazy Eddie"), and Mobil Oil Corporation ("Mobil") for infringement of United States Letters Patent No. 3,696,335 ("the '335 patent"), in connection with a credit verification system. The patentee is Jerome H. Lemelson and he received the patent on October 3, 1972. Refac moves pursuant to Fed.R.Civ.P. 42(b) to trifurcate issues of validity of the patent, liability, and damages, staying any motion by the defendants for summary judgment on issues liability or infringement until after a hearing and decision on the issue of validity. Mastercard and Mobil move pursuant to Fed.R.Civ.P. 12(b)(1) and (b)(7) to dismiss the complaint for lack of standing or for failure to join an indispensable party. In addition, Mastercard, Mobil, and the Gap move pursuant to Fed.R.Civ.P. 56 for summary judgment on the issue of non-infringement. Mastercard raises the additional defense of laches. Hit or Miss and Walden have stipulated to a dismissal of the action with prejudice. A stay of action is entered in favor of Crazy Eddie and B. Altman pending reorganization under Chapter 11 of the bankruptcy code.

On November 21, 1990, Refac and Lemelson, the named patentee, allegedly entered into a formal agreement whereby Refac gained full right, title, and interest in the subject patent. Since Refac purportedly became owner of the patent, it expressed its desire and willingness to discuss licensing and settlement with the outstanding defendants. No settlement has thus far been reached among the parties. The following constitutes my findings of fact and conclusions of law.

FACTS

Lemelson patented a device that allows immediate credit verification of customers' credit lines. The system is designed to update the status of credit accounts once a valid credit card is swept through the device. In addition to rapid verification of credit, the system has a registry of lost or stolen cards, thus preventing their potentially being put to unauthorized use. This is done without need for a retailer to make contact with the central data processing station of the credit card network, allowing a credit determination before any transaction data is sent to the central data processing station for billing purposes. Mobil's 3(g) Statement ("Mobil's 3(g)") ¶¶ 2-7; Plaintiff's Notice of Motion to Trifurcate, ¶¶ 1, 2. Local access to credit information, as performed by the system, eliminates the need to communicate directly with the computer by telephone lines for each transaction. Mobil's 3(g) ¶ 7. This removes expense and delay associated with computerized verification via telephone lines. Mobil's 3(g) ¶ 8.

DISCUSSION

A. Refac's Application to Trifurcate

Refac seeks to trifurcate the issues of validity of the patent, liability for infringements, and determination of damages until after a hearing is conducted and a decision rendered on the issue of validity. Refac contends that each of the eight defendants infringe for different reasons. Thus, the issue of validity has the "potential of disposing of the case for each and every defendant." Resolving it first, they argue, would save time, effort, and resources for both the parties and the Court. I disagree.

B. Lack of Standing

Mobil joins Mastercard in moving to dismiss the complaint for Refac's lack of standing to bring suit on behalf of Lemelson and in the alternative for failure to join Lemelson as an indispensable party. "In order to sue for infringement under 35 U.S.C. § 281, the plaintiff must be the owner of the patents, i.e., the patentee or assignee of the patent." Afros S.P.A. v. Krauss-Maffei Corp., 671 F. Supp. 1402, 1444 (D.Del. 1987), aff'd without opinion, 848 F.2d 1244 (Fed. Cir. 1988). Every patent contains "a seventeen year clause under which the patentee or assignee may exclude others from making, using, or selling the invention throughout the United States." 35 U.S.C. § 154 (1982). Status as an assignee or patentee is a crucial prerequisite to bringing suit on infringement. Failure to assign all rights under the patent bars a claim for infringement unless the patentee is made a party to the suit. Afros S.P.A. v. Krauss-Maffei Corp., 671 F. Supp. at 1444. Refac maintains that it had exclusive rights, as an assignee, to Lemelson's '335 patent at the time that it discovered the infringements that are subject of this case. There is no indication from the submissions that Refac was granted sole and exclusive rights in the '335 patent at that time.*fn2 Thus, even if I find that Refac has standing to sue on behalf of its rights in the '335 patent, it does not have the requisite exclusive rights to bring this suit without joining Lemelson.

"Agreements transferring patent rights must be either assignments or licenses. Whether an agreement be one or the other is governed by its substance, not its label." CMS Industries, Inc. v. L.P.S. International, Ltd., 643 F.2d 289, 294 (5th Cir. 1981) (citing Waterman v. Mackenzie, 138 U.S. 252, 255, 11 S.Ct. 334, 335, 34 L.Ed. 923 (1891)). "Where an agreement effectively transfers the entire bundle of rights residing in a patent, that agreement is an assignment, not a license." CMS Industries, Inc. v. L.P.S. International, Ltd., 643 F.2d at 294 (citing Etherington v. Hardee, 290 F.2d 28, 29 (5th Cir. 1961)). Not only does the complaint fail to allege exclusivity in assignment of the patent, but Refac's rights were expressly subject to the non-exclusive rights already granted to International Business Machines ("IBM") and Hewlett-Packard ("HP"). Mastercard's Memorandum in Support of Motion to Dismiss, Exhs. B, C. As a result of Lemelson's agreement with IBM and HP, Refac was forced to take its license subject to the prior rights of IBM and HP.*fn3

Moreover, the agreement entered between Lemelson and HP explicitly provides that if Lemelson engaged in a transaction to sell or exclusively license the patent, such transaction would be subject to HP's right to obtain "a field-of-use restriction upon the license rights granted" and "that [such] restriction shall be binding upon Lemelson and upon all persons and entities claiming a right of action by, through or under Lemelson." See Mastercard's Memorandum in Support of Motion to Dismiss, Exh. C, p. 10. Similarly, the IBM agreement specifically requires that any assignment be made "subject to the terms and conditions" of the IBM agreement. Mastercard's Memorandum in Support of Motion to Dismiss, Exh. B, p. 14. It further provides that in the event Lemelson wishes to sell or exclusively license one or more of the licensed patents, including the '335 patent, any such sale or license would be subject to IBM's right to have its license continue. Mastercard's Memorandum in Support of Motion to Dismiss, Exh. B, p. 19. Thus, this claim that an exclusive license was granted Refac is belied by the express language of the agreements with IBM and HP which were entered into prior to the filing of this complaint. Clearly, whether done intentionally or not, the assignment was ineffective for the full bundle of rights to the '335 patent was not transfered by Lemelson to Refac.

Indeed, it was not until November 7, 1990 that Refac was purportedly granted exclusive rights in the patent at bar.*fn4 See e.g., Afros S.P.A. v. Krauss-Maffei Corp., 671 F. Supp. 1402, 1446 (D.Del. 1987), aff'd without opinion, 848 F.2d 1244 (Fed. Cir. 1988) ("Permitting a presently invalid assignment to serve as the basis of a claim under 35 U.S.C. ยง 281 on the ground that it later `became' valid, which ratification transposes itself back in time, will impermissibly expand the class of persons able to sue for infringement"). Clearly Lemelson, IBM, and HP shared rights in the very same '335 patent in which Refac now claims exclusive rights. Failure to assign all rights under the patent bars Refac's claim for infringement unless Lemelson is ...


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