Uniloc USA, Inc. v. Apple Inc.

Background

Hewlett Packard assigned several patents to Uniloc Luxembourg on May 16, 2017. Uniloc Luxembourg then licensed the patents to Uniloc USA, and the two entities sued Apple. In an earlier order, the court granted Apple judgment on the pleadings and found the asserted claims of United States Patent No. 6,661,203 invalid under 35 U.S.C. § 101. The Federal Circuit later sent the case back so the district court could consider standing—that is, whether the plaintiffs had the legal and constitutional right to bring the case.

The standing issue arose from agreements between the Unilocs and Fortress Credit Co LLC, which had funded the Unilocs’ patent litigation since 2014. The agreements gave Fortress a broad, transferable, sublicensable, royalty-free license to the patents, but allowed Fortress to use that license after an “Event of Default.” The agreements required the Unilocs to receive at least $20 million in monetization revenue during specified periods.

Contractual Default

The court found that the Unilocs had received only $14 million during the relevant year, missing the required target by $6 million. Under the agreements, that failure triggered an Event of Default. The court also found that the default was never cured.

The agreements provided several ways to eliminate a default, including a written waiver, a cure satisfactory to Fortress, or an amendment that expressly cured the default. The Unilocs had not obtained a written waiver, had not raised the additional $6 million, and had taken no action to cure the default. Although the parties amended their agreements on May 15, 2017, the amendment did not expressly cure the default and stated that it did not waive any rights or remedies. Applying New York contract law, the court concluded that the amendment did not cure the default.

Standing and Exclusionary Rights

The court explained that patent standing depends on an injury to a legally protected interest, and that a patent plaintiff generally must have the right to exclude others from practicing the patented invention. The court distinguished this constitutional standing inquiry from the separate statutory question of whether a party holds all substantial rights needed to sue in its own name.

Because the default remained uncured when the Unilocs filed suit on May 26, 2017, Fortress could exercise its broad license. The license allowed Fortress, in its sole and absolute discretion, to license the ’203 patent to others. The court reasoned that Uniloc Luxembourg and Uniloc USA therefore could not expect to exclude others from practicing the patent and had no injury based on an invasion of exclusionary rights.

The court rejected the Unilocs’ arguments that Fortress’s lack of belief that a default existed showed reasonable satisfaction, that Apple could not rely on contracts to which it was not a party, and that Fortress’s license operated only prospectively. The court held that the contract language, rather than the parties’ subjective beliefs, controlled. It also held that the license operated prospectively and retrospectively because the agreements contained no limitation restricting it to future sublicenses.

Disposition

The court held that the Unilocs’ licensing arrangement deprived them of exclusionary rights and therefore of Article III standing. It found that this defect could not be cured through joinder, which is the addition of a party to a lawsuit.

Apple’s motion to dismiss was GRANTED. The Unilocs’ motion to join Uniloc 2017 was DENIED AS MOOT. The court VACATED its earlier judgment on the pleadings, with the understanding that the invalidity order would be reinstated if this standing order were vacated or reversed. The case was DISMISSED, and the clerk was directed to close the file.